Wednesday, May 5, 2010

Melcor Developments Inc 2

I want to continue today to talk about this company (TSX-MRD) that I bought in 2008 and because the price really dropped, I picked up a bit more in 2009. My total return on this stock, including dividends is 12.3% per year. The reason for the great return is because of my purchase in 2009 at a stock low point.

When I look at insider buying and insider selling, I see that there is only insider buying. This amount to only .28M, but it is a good sign. The other good thing is that insiders seem to be retaining their stock options. All the stock purchases were under $12 per share, but then until very recently, this stock has been under $12 since this stock dropped in price at the end of 2008.

The current P/E ratio at 10.7 is quite low. However, the low P/E for this stock seems to have always been quite low. The 5 year average low is just 5.2. The P/E got very low over the past few years, but even looking back further, the low P/E was often 5, 6, 7 and 8. I get a P/E average high of 13.2. However, the P/E high has been the highest ever over the past few years. Over the last 10 years, the P/E high has often been around 9.

When I look at the Graham Price, I get one for 2010 of $17.27. The current price of $13.15 is some 24% below this Graham Price. Looking at the past on this stock, the stock price has often been way below the Graham Price. Over the past 10 years, the stock price has been on average 18% below the Graham Price at market highs and at 57% below the Graham Price at market lows.

When I look at the Price/Book Value Ratio, I find that the current ratio at 1.22 is almost at the 10 year average of 1.24. A good stock price is usually when the current ratio is 80% or less of the 10 year average. The last item to look at is dividend yield. The current yield is 1.9% and the 5 year average is 2.4%. Ideally, the current yield should be higher than the 5 year average. The major reason it is not on this stock is that the dividends have just been cut.

When I look for analysts’ recommendations, I seem to only find one and it is a buy. (See my site for information on analyst ratings.) This stock is not well covered. This stock was really hit hard by the recent recession for it fell from about $30 to $3, which is about a 90% drop in stock price. It has since recovered by 338%, but it is still 57% down from its peak.

It is probably at a relatively good price. Will there be a better price later. This is always hard to say. I think it is a good stock, but a rather risky one, as far as dividend paying stock goes. The dividend was decreased in 2009, so this shows that the management is a bit unsure of the future. However, there is some insider buying which shows some faith in the company by management. Also, just over 50% of the company is owned by the Melton family, which mostly owns this company through Melton Holdings Ltd.

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 here Melcor. See my spreadsheet at 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 for stocks followed and investment notes. Follow me on twitter.

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