Assessing Lumine Group (TSXV:LMN) Valuation After Mark Leonard’s Long-Term Endorsement

Recent comments from Constellation Software founder Mark Leonard, who said he wants his grandchildren to hold Lumine Group (TSXV:LMN) for life, have put fresh attention on the company and its telecom and media software focus.

See our latest analysis for Lumine Group.

Despite the renewed attention from Mark Leonard’s comments, Lumine Group’s share price has come under pressure, with a 30 day share price return of 10.27% and a 90 day share price return of 30.95%. However, the 1 year total shareholder return of 38.48% points to weaker long term momentum.

If this kind of focused software story interests you, it can be worth widening the lens to see what else is out there in telecom and media by scanning high growth tech and AI stocks.

With Lumine Group’s recent share price declines, a 1 year total shareholder return of 38.48% and revenue growth of 16.33%, the real question is whether the current valuation is attractive or if the market is already pricing in future growth.

Price-to-Earnings of 45.5x: Is it justified?

Lumine Group last closed at CA$24.30 and is assessed as trading 19% below an estimated fair value of CA$29.99, yet the shares currently change hands at a P/E of 45.5x that sits exactly in line with both its peer group and the wider Canadian software industry.

The P/E multiple compares the current share price with earnings per share, so for software names like Lumine Group it essentially reflects what investors are willing to pay today for each dollar of current earnings. A higher P/E can sometimes signal confidence in future earnings, while a lower one can reflect more muted expectations.

In this case, the 45.5x P/E aligns with peers and the Canadian software industry average of 45.5x. This suggests the market is currently valuing Lumine Group’s earnings similarly to other software companies. However, set against an estimated fair P/E of 18.2x, the market price sits well above a level that our fair ratio indicates it could gravitate toward over time if sentiment or earnings expectations change.

Explore the SWS fair ratio for Lumine Group

Result: Price-to-Earnings of 45.5x (OVERVALUED)

However, investors still need to weigh a 17.52% annual net income decline and a negative 1-year total return of 38.48%, which could challenge confidence in the current valuation.

Find out about the key risks to this Lumine Group narrative.

Another View: DCF Points in the Opposite Direction

The earlier P/E discussion suggested Lumine Group looks expensive relative to an 18.2x fair ratio. Our DCF model tells a different story, with shares trading at CA$24.30 compared with an estimated fair value of CA$29.99, implying the stock sits 19% below that DCF estimate.

This contrast between a rich earnings multiple and a discount to our DCF fair value highlights a tension. Is the market putting too much weight on near term earnings pressure, or is the DCF model assuming a path the business will struggle to match?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Lumine Group for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 873 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match – so you never miss a potential opportunity.

Build Your Own Lumine Group Narrative

If you look at the numbers and reach a different conclusion, or simply prefer to test your own assumptions against the data, you can build a custom view in just a few minutes with Do it your way.

A great starting point for your Lumine Group research is our analysis highlighting 4 key rewards and 1 important warning sign that could impact your investment decision.

Looking for more investment ideas?

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This article by Simply Wall St is general in nature. We provide commentary based on historical data
and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your
financial situation. We aim to bring you long-term focused analysis driven by fundamental data.
Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
Simply Wall St has no position in any stocks mentioned.

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