Double-digit growth rates are a key ingredient of long-term wealth creation. Unsurprisingly, this pace of growth is exceedingly rare. Diminishingly few companies meet this target on a consistent basis. The ones that do usually gain a premium valuation from the investment community.
This is why an undervalued growth stock like Cymbria (TSX:CYB) is so rare. Toronto-based Cymbria is an investment company that manages a highly concentrated portfolio of some excellent stocks.
Launched at the height of the financial crisis in 2008, the company has been steadily accumulating wealth for shareholders while staying well below the radar of the average investor. Here’s a closer look at the company’s portfolio performance and its current valuation.
Cymbria has one of the most well-diversified and cleverly curated portfolios I’ve ever seen. The most noteworthy name in the basket is Berkshire Hathaway, which accounts for 2.6% of the total portfolio and is the company’s ninth-largest investment.
The largest investment is Canadian mutual fund company EdgePoint Wealth Management, which accounts for 20% of the total.
Other holdings include electronic equipment maker TE Connectivity, oil and gas machinery provider Flowserve, rail transport and real estate company CSX, and Japanese cosmetics giant Shiseido.
As you can see, the company’s $1.2 billion in assets are stretched across some interesting industries and uncorrelated regions, creating a robust portfolio of steady growth stocks.
Over the past 10 years, this portfolio has delivered an impressive 16.27% compounded annual return. Meanwhile, the stock has more than quintupled since it was listed in 2008. The compound growth rate of the stock price over the past decade is 15.5%.
Of course, Cymbria has enjoyed a record-breaking bull market and has never faced a recession or downturn in its history, so it could be interesting to see how the investment team reacts to the inevitable economic slowdown up ahead.
As with any other investment holding company, Cymbria’s valuation is relatively straightforward. The underlying value of the assets, marked to market, is roughly the value of the whole company. You can also add a premium for valuations and management.
Effectively, if the stock price is less than the value of net assets, the company is undervalued. At the time of writing, Cymbria claims its net asset value per share is $52.89, net of taxes. The stock, meanwhile, trades at $53.76 at the moment.
So, if you believe Cymbria’s management team has picked up undervalued investments with the potential for growth, the stock is fairly valued. If you think the stock market is due for a correction or an economic recession next year, you could wait for the price to fall closer to or below NAV for a better deal.
Either way, this is a stock I believe every value investor should monitor closely for their Tax-Free Savings Account.
Very few stocks can deliver consistent double-digit growth rates over extended periods. However, an investment company with the right track record, promising portfolio and appropriate valuation could be the perfect combination for steady growth-seeking investors. Cymbria seems to tick all the boxes.
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The Motley Fool owns shares of and recommends Berkshire Hathaway (B shares) and recommends the following options: long January 2021 $200 calls on Berkshire Hathaway (B shares), short January 2021 $200 puts on Berkshire Hathaway (B shares), and short January 2020 $220 calls on Berkshire Hathaway (B shares). Fool contributor Vishesh Raisinghani has no position in any of the stocks mentioned.