Thursday, January 7, 2010

Shoppers Drug Mart 2

I am today continuing my review on Shoppers Drug Mart stock (TSX-SC). I first bought this stock last January as my pick for my new TFSA. On this stock, I have made a return of just over 4%. As I said yesterday, this is a Consumer Staple stock and the main reason I buy Consumer Staple stock is for diversification. I do not think that this is a stock you can buy and just tuck away in your portfolio. I will keep an eye on it. If it does badly after this recession is over, I will sell.

This is a widely held company. One of the problems I see with this stock is that the Insiders have more stock options than shares. As stock options are granted, they are sold. If you look at Insider Buying and Insider Selling, you will find that there is only Insider Selling. Insider Selling over the past year is high at over $5M. Unlike Matrikon Inc. that I reviewed yesterday, the Insiders do not have a stake in this company.

The first spreadsheet ratio I want to talk about is the P/E Ratio. The 5 year average low for this company is 19.8 and the 5 year high for this company is 24.5. The current P/E, using the earnings estimate for 2009 is 16.3. The sites that use the last 12 months earnings get the same P/E. None of these P/E ratios are low, but the current one, for this stock is not bad. The next thing to look at is the Dividend Yield. The current dividend yield is 1.9% compared to a four year average of 1.3%. This shows that the current price is a good one.

The next thing to look at is the Price/Book Value. The current P/BV ratio is less than 80% of the 10 year average P/BV ratio. The P/BV ratio on this stock tends to be a bit high and the current one of 2.62 is, of course, not bad but is not a great one either. The last thing to look at is the Graham price. The Graham price for 2009 is $32.34. This is almost 38% below the current stock price of $44.53. However, the difference between the Graham Price and the stock price has been an average of 140% over the past 10 years. Although the stock price is not at the Graham Price, it shows the stock price is relatively low when compared to past prices.

When I look at analysts recommendations, I find they range from Strong Buy to Hold, with the majority in the Buy section. I also note that there are more Hold recommendations than Strong Buy recommendations. (See my site for information on analyst ratings.) Analysts seem to like this stock because Shoppers is a market leader and it has a ubiquitous presence in Canadian cities. It is also expanding into suburbia and small towns.

The good thing about this stock is that Shoppers Drug Mart is an admired corporation. It is admired for such things as its corporate cultures, its customer-driven innovations and its passion for results. The negatives I see are the lack of an increase in dividends for 2009 and the high Accrual Ratio. The accrual Ratio is 5.7% and anything over 5% is high. I would also like to see better growth in cash flow. However, no stock is perfect and this stock would currently appear to be a good one for long term growth.

I just bought some more of these shares for my TFSA and I will retain the shares I currently own. The spreadsheet ratios that I look at show that the current stock price is a reasonable price. This is probably why there are so many Buy recommendations on this stock.

Shoppers Drug Mart Corp. 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 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. Also, look at other investing notes on my website at

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