Sold out Toromont Ind (TIH.TO)
I sold out my Position in Toromont yesterday at $218.99 (Cnd) as I was concerned about its rising valuation. I took the money and established new positions in Colliers International Group Inc. and Mainstreet Equity Corp. I decided to do a little capital recycling (like Brookfield Corp) and put my money into these new names as they offered me a little more margin of safety. I then checked in with Google's Gemini for its input on my actions which is below.
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Company Profile
Toromont Industries Ltd. (TSX: TIH) is a premier Canadian industrial equipment and services provider, best known as one of the largest Caterpillar dealers globally.
Core Business Segments
Toromont’s operations are primarily divided into two main segments:
The Equipment Group: This is the core of the company, consisting of Toromont Cat, Battlefield Equipment Rentals, and specialized divisions for mining, power systems, and material handling.
It serves a broad range of infrastructure-linked industries, including road building, residential and commercial construction, and large-scale mining operations. CIMCO: A leader in North American industrial and recreational refrigeration.
This segment focuses on thermal management solutions, increasingly shifting toward sustainable and natural refrigerant systems for municipal ice rinks and industrial cold storage. AVL Enclosure Business: A rapidly growing component that manufactures specialized enclosures for power generation, particularly serving the expanding data center market in the Eastern United States.
Leadership and Governance
The company is led by an executive team that emphasizes operational discipline and conservative financial management:
Mike McMillan (President & CEO): Appointed in October 2023, McMillan previously served as the CFO.
His background in finance and operations within capital-intensive industries (including Parkland Corp) aligns with the company’s focus on balance sheet strength. John Doolittle (EVP & CFO): Joined in 2023 with 30 years of experience in global corporations, specializing in capital markets and financial strategy.
Decentralized Strategy: Management empowers business unit leaders (such as those for Toromont Cat and Battlefield) to handle day-to-day operations, while the corporate office focuses on capital allocation, risk management, and long-term strategy.
Fundamental Profile & 2026 Outlook
As of early 2026, Toromont remains a "quality" industrial play with a few specific drivers:
Financial Resilience: The company recently reported a strong Q1 2026, with revenue reaching approximately $1.23 billion (up 13% YoY) and net earnings growing by 25%.
Dividend Reliability: Toromont has a long-standing history of consistent dividend growth, recently increasing the quarterly dividend to $0.56 per share.
Growth Tailwinds: The business is currently benefiting from high demand in infrastructure and mining, as well as a massive surge in the AVL enclosure business, which saw revenues jump significantly (over 400% in Q1 2026) due to data center demand.
Valuation: While the stock has seen significant momentum over the past year, trading near all-time highs (approx. $208–$217), analysts generally view it as fairly valued, reflecting its market-leading position and consistent execution.
Deepening the look into Toromont Industries (TSX: TIH), the current valuation reflects a company trading at historical premiums, driven by its recent integration of AVL and a significant "beat-and-raise" cycle in early 2026.
Here is a breakdown of the valuation through a fundamental lens:
1. Multiples Analysis
As of May 7, 2026, the market is pricing Toromont as a high-growth compounder rather than a traditional cyclical industrial.
P/E Ratio (Trailing): Currently sitting around 34x–35x.
Historically, Toromont has traded in the 18x–24x range. The current "multiple expansion" suggests investors are paying a premium for the explosive growth in the data center enclosure business (AVL). Forward P/E (2026E): Based on analyst consensus estimates of roughly $6.50–$6.90 EPS for the full year, the forward multiple is approximately 30x–32x.
PEG Ratio: Approximately 3.72.
Generally, a PEG above 1.0 suggests a stock is expensive relative to its growth, but for "quality" names with deep moats (like a Caterpillar dealership), the market often allows this to remain elevated.
2. Intrinsic Value & Analyst Targets
While the stock price has surged (recently hitting all-time highs near $222), "fair value" estimates are struggling to keep pace:
Discounted Cash Flow (DCF) Estimates: Various models place the fair value between $207 and $210. This suggests that at $222, the stock is trading at a ~6% premium to its intrinsic value based on current cash flow projections.
Analyst Consensus: The average 12-month price target is currently $216.44, with a "Buy" range extending up to $235.
The stock is currently trading slightly above the average consensus, indicating that much of the near-term good news is already "priced in."
3. Profitability & Capital Efficiency
The justification for the premium valuation lies in the company’s efficiency metrics, which remain top-tier for the industry:
4. Dividend & Payout Health
For a long-term holder, the valuation is supported by a very "safe" dividend profile:
Yield: ~1.0% (Annualized $2.24).
Payout Ratio: ~33%.
This is exceptionally low for a mature industrial, providing massive "dry powder" for either further dividend increases or more M&A activity. Dividend Growth: The recent 7.7% increase (to $0.56/quarter) continues a 30+ year streak of increases.
Summary Verdict
Toromont is currently in a "Growth at a High Price" phase.
The Bull Case: The AVL enclosure business (up 484% YoY) is a structural shift, not a cyclical one, justifying the 30x+ multiple.
The Bear Case: At $222+, there is very little margin for error. Any slowdown in infrastructure spending or data center build-outs could lead to a "multiple compression" back toward the 25x range, which would imply a share price closer to $175–$185.
When evaluating Toromont Industries (TIH) against its primary Canadian peers—Finning International (FTT) and Wajax (WJX)—the most striking takeaway is the massive valuation gap.
1. Peer Valuation Comparison (May 2026)
2. Key Differentiation Drivers
The "AVL Premium": While Finning is a larger global player (operating in South America and the UK/Ireland), Toromont’s valuation has decoupled due to its AVL Enclosure business. The 400%+ growth in this segment—driven by the explosion in Eastern U.S. data center demand—has led the market to apply a "tech-adjacent" multiple to Toromont that Finning (more tied to mining and heavy energy in Western Canada) does not currently command.
Asset Quality & Geography: Finning's exposure to the oil sands and South American mining makes it more sensitive to global commodity cycles and geopolitical risks. Toromont’s focus on the Ontario/Eastern Canada corridor, combined with a highly profitable refrigeration segment (CIMCO), is viewed as a "smoother" earnings profile.
Capital Efficiency: Toromont consistently maintains a higher Return on Capital Employed (ROCE)—recently reported at 24.4%—compared to Finning and Wajax, which typically hover in the mid-to-high teens. This superior efficiency is a primary reason fundamental investors justify the higher P/E.
3. Risks of the "Valuation Chasm"
Multiple Compression: Toromont’s 34x P/E is significantly higher than its 3-year average of ~24x. If the data center build-out cools or infrastructure spending in Ontario slows, TIH faces a much steeper "valuation cliff" than its peers.
Relative Value: From a pure fundamental value perspective, Finning appears "cheaper" relative to its cash flow, and Wajax offers a significantly higher income component (4.1% yield) for investors willing to accept a smaller-cap industrial play.
Summary
The market is currently treating Toromont as the "Gold Standard" of the group. You are paying a high premium for management quality and the specific tailwinds of the data center industry. While Finning has better global scale, Toromont’s recent momentum and high-margin specialized segments have made it the most expensive industrial stock on the TSX.
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I sold out my position in Toromont yesterday, after more than doubling my money, as I was concerned about it's current valuation. I took the money and established new positions in CIGI and MEQ which also trad on the TSX.
That is a textbook example of "selling into strength." Doubling your money on a high-quality industrial like Toromont and exiting at a ~34x multiple shows a disciplined focus on fundamental value. While TIH is a great company, as you noted, the current valuation leaves very little "margin of safety" for a fundamental investor.
Your pivot into Colliers International (CIGI) and Mainstreet Equity Corp (MEQ) shifts your capital toward the real estate and professional services sectors, both of which offer very different fundamental profiles.
Colliers International (TSX: CIGI)
Colliers has evolved far beyond being just a "brokerage." It is now a global diversified professional services firm with a heavy emphasis on recurring revenue.
The Investment Thesis: They have aggressively expanded into Investment Management and Engineering/Design services. These segments provide much higher margins and more predictable cash flows than the cyclical brokerage side.
Fundamental Value: Management is exceptionally skilled at capital allocation (M&A). They target internal returns on invested capital (ROIC) that usually outperform the broader market.
Outlook: As interest rate environments stabilize in 2026, the global capital markets activity (buying/selling large commercial assets) is expected to pick up, which should provide a nice tailwind for their transaction-based segments.
Mainstreet Equity Corp (TSX: MEQ)
This is a very different play—a "value-add" residential specialist focused on Western Canada.
The Investment Thesis: Mainstreet’s model is distinct: they buy underperforming mid-market apartment buildings, renovate them, and then "refinance and repeat." They own the assets (unlike Colliers), making this a pure play on Canadian multi-family real estate.
Fundamental Value: MEQ often trades at a significant discount to its Net Asset Value (NAV). Because they don't pay a dividend (preferring to reinvest every cent into buying more properties), it’s a pure capital appreciation play.
Geography Advantage: Being heavily weighted in Alberta and Saskatchewan, they benefit from lower corporate taxes and high inter-provincial migration compared to the Ontario market.
Comparison of the New Allocation
Both companies are led by very strong management teams—Jay Hennick at Colliers and Navjeet (Bob) Dhillon at Mainstreet—which aligns well with a focus on senior management quality.
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Source
Google Gemini
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