Thursday, July 9, 2009

Melcor Development 2

I am continuing my review of this stock (MRD-TSX). I want to note a couple of things. The company has cut their dividend in 2009 by just over 50%. The other thing is that this stock has been removed from the TSX Dividend Aristocrats list at (see indices).

I first bought this company in 2008 and I have lost some 41% on my investment. When buying stock, you never know what the future holds, so you should always aim for a reasonable price when you buy a stock. You cannot do any better. The stock market goes up and the stock market goes down. I believe that this stock will recover and over the long term provide me with a reasonable return.

The first thing I like to look at is Inside Buying and Selling. For this stock, there has only been insider buying. The CFO, some other officers of the company and some directors have all increased their stake in this company. This is indeed a positive sign. The buying has been between November 2008 and today. The buying started after there was a big fall in the price of this stock in the later part of 2008.

In looking at the P/E ratio, it depends on where you look what this figure is. The Globe Investor uses the earnings over the past year to determine a P/E and for this company that P/E is low. If you look at my spreadsheet, it is quite high at 16 for 2009 because of the earning estimate for this year. The one for 2010, or the future P/E ratio on my spreadsheet is not bad at 10.6. There is a big difference in what people expect for earnings in 2009 and 2010, so this ratio is problematic.

Also, for this stock, I do not think the yield helps much as there was recently a dividend decrease and this brings the yield into line with the average. Better places to look to see if there is value in the current price is the Graham Price and the Price/Book Value. Even though the Graham Price is dependent on earning estimates, the stock price is significantly below the Graham Price by over 30% for 2009 and rising to over 45% in 2010.

In looking at the P/BV ratio, I find that the current ratio is only 36% of the 10 year average. Any thing below 80% of the 10 year average is pointing to a very good stock price. However, the Graham Price and P/BV depend heavily on the current book value. The future book value will depend, of course, on this company pulling out of this current recession in tact.

So now, it is time to look at what the analysts are recommending. There are few analysts following this stock. The only recommendations I can find are a Buy. (See my site for information on analyst ratings.) To me this seems a reasonable rating. The company has taken necessary steps to conserve its cash. They also show a vote of confidence in buying shares.

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 See my spreadsheet at

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 for a list of the stocks for which I have put up spreadsheets.

No comments:

Post a Comment