Tuesday, March 31, 2009

Melcor Development 2

I am continuing my review of this stock (TSX-MRD) today. The first thing to mention is that there is insider buying. All this buying, so far, has occurred under $5.05. Also, options granted in December 2008 have been held, rather than sold. This shows that insiders have some faith in this company. There is no insider selling.

The next thing to look at is the Ratios. Do they point to this stock being a good buy? The first is the yield, which is Price/Dividend. The 5 year average is 3% and the current is 7.5%. If they do not reduce it this year, it will be even better at 9%. All the quotes on current yield uses the last one issued, and for this stock, no one is saying what the dividends for 2009 will be.

The next ratio to look at is the P/E ratio. There is a wide difference in what analysts think this stock’s EPS will be for 2009. If we assume earnings of $.65 then the P/E is almost 7 and not much below the 5 year average of 8. Just having analysts think that the earnings will be much lower for 2009, in itself, will depress the stock’s price. The company has real estate in Alberta, so it will not recover until Alberta’s economy recovers. It is hard to say when this will happen, and the analysts may be right in assuming it will not occur in 2009.

However, if you look at the trailing P/E, that is the P/E ratio, but using the current year earnings, the Trailing P/E is just over 3%, compared to the 5 year average of 10%. The other thing to look at to see if the current price is good is the Graham Price. The current price is almost 75% below the Graham Price. The other good thing is the strong balance sheet, where the Asset/Liability Ratio is 1.78. It is not as good as the 10 year and 5 year averages for this stock, but anything over 1.50 is healthy.

The one negative thing I have to say about this stock is the negative cash flow for the year ending in 2008. Also, the Return on Equity (ROE) was lower in 2008 at 13% than the 5 year running average of 19%. If you look at the charts, this stock has not done as well as the TSX Real Estate Index for the 1 year and 3 year periods. It has done better for the 5 and 10 year periods. This stock has been hit hard by the recent recession, but then, it is a small cap stock. Before this recent period, it was doing better than the TSX Real Estate Index. It has a strong Balance Sheet, and usually companies than can survive a recession can do very well. The point is that they have to survive the recession, and I think this company will do so.

In looking at the analyst ratings on this stock, they are very few following this stock, but the only rating that this stock seems to have is a buy. (See my site for information on analyst ratings.)

This company is primarily engaged in the acquisition of land for development and sale of residential communities, multi- family sites and commercial sites. It operates mostly in B.C. and Alberta. The company also develops, owns and manages commercial income properties, as well as two golf courses. Its web site is www.melcor.ca. See my spreadsheet on this company at www.spbrunner.com/stocks/mrd.htm.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. See my website at www.spbrunner.com/stocks.html for a list of the stocks for which I have put up spreadsheets on my web site.

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