Shoppers Drug Mart 2

I am reviewing this stock (TSX-SC) today as I have not reviewed it since January 2009 and the 2008 year end annual statement came in later. I bought this stock for my new Tax Free Savings Account (TFSA) in January 2009. To date, including dividends, I have made some 24% return.

I find that the amount of Insider Selling is a concern. This selling is by the CFO and other Officers. The CEO does not appear to be selling, but he owns few shares. The Directors, who own a more substantial amount of shares, do not appear to be selling either. A lot of the selling is of options. Insiders seem to own an awful lot of options and little amounts of shares. There is no Insider Buying at all. The insider selling is huge, amounting to over $15 Million over the past year.

I know of investors who would never invest in any company with insider selling. I realize that you know insiders feel confident in a stock they are buying and you never know why people are selling. People sell stocks for a lot of reasons that can be unconnected to the stock. They could just need the money. However, with this stock, you got to wonder if the insiders have any confidence in the future of the company when they are selling so much.

With the insider selling being dealt with, I want to look at what the spreadsheet ratios and the Graham Price is telling us. First, the P/E ratio is relatively low at 14. This is also low for this stock, which has a 5 year average low of 20. The dividend yield at 1.8% is a bit higher than the 4 year average of 1.3%. However, this is a low yield. The other thing is that this company did not raise its dividends in 2009, which it has done every other year since it started to pay dividends. The lack of a dividend increase is a negative.

The current price is more than 30% higher than the Graham Price. On growth stocks, which this is, the Graham Price is often quite lower than the stock price. On growth stocks the stock price seldom, if ever hits the Graham Price. With this stock, the difference between the stock price and the Graham Price is less than usual, so it points to a relatively good price, but not an absolutely good price.

The only ratio that looks good is the Price/Book Value Ratio. This ratio is about 85% of the 10 year average. I think a buy signal would show this ratio at 80% of the 10 year average, but 85% is not bad. The other thing is with that the Accrual Ratio for the 2nd quarter is now negative and this is a good sign. I think that all this stuff points to a reasonable stock price. However, it does not point to a great stock price.

When I look at analysts’ recommendations, the consensus is a Buy. There are quite a few analysts that follow this stock. There are many Strong Buys and Buys and a few Holds on this stock. (See my site for information on analyst ratings.) No analysts’ reports I reviewed expressed concern with the amount of insider selling going on.

If you look at the charts, this stock has done as well as or better than the TSX index in periods of 5 years and less. Plus you would get a little extra with their dividend. If you look at the 8 years that this stock has been in the TSX, it has done much better than the TSX.

I am retaining my stock for the moment. This purchase was to try out this stock and since it was for my TFSA account, I did not buy much. I am still concern about the amount of insider selling. When I put more money into the TFSA for 2010, I will have to make a decision on this stock. Buy more or take my profits and go into some other stock.

Shoppers Drug Mart is a licensor of Shoppers Drug Mart in Canada and Pharmaprix in Quebec. The company owns and operates Shoppers Home Health Care stores. It also owns MediSystem Technologies Inc. and the new Murale Stores. Its web site is www.sc.com. See my spreadsheet at www.spbrunner.com/stocks/sc.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.