Wednesday, October 6, 2010

Lassonde Industries 2

I do not own any shares in this consumer stock. However, I have started to follow it as it has been recommended for dividend growth and long term capital gain. I just read a report to say this stock (TSX-LAS.A) was undervalued and was currently a good one to buy for long term gains and future dividends.

Well, first off, I find that there is very little activity on the Insider Selling and Insider Buying activity. There was less than $150,000 of insider selling last year and no activity this year. Some of the insiders own shares in this company, but there is not much in the way of any stock options. The thing to note is that Lassonde is buying up their shares. This repurchasing of their shares over the past year seems to be less than 1% of the shares outstanding.

The 5 year low median P/E ratio is 10 and the 5 year high median P/E Ratio is 12.3. The current P/E ratio is 12.7 and the forward P/E is 12. The forward P/E uses the current stock price and the expected earnings for 2011. These P/E ratios are in a narrow range and none of them is high. The next thing to look at is the Graham Price and I get one of $55 for this stock. The current price is $57.10 is close and is only4% above this. This stock tends to spend a lot of time at or lower than the Graham Price.

The first thing I can find pointing to a good current price is the dividend yield. The current yield is 2% and the 5 year average is 1.7%. However, the Price/Book Value ratio at 1.91 is about 17% above the 10 year average of 1.64. What you want to see is the current P/B below the long term average. So from my spreadsheet ratios, the price is high or fair, except when looking at yield. Of course, all analysts have their own way of calculating what a good stock price should be.

On the report I read, they consider a stock to be undervalued if the earnings growth rate is higher than the P/E ratio. I get a 5 and 10 year average earnings growth of 21.3% and 15.6% respectively. They divide the recent average earnings growth rate by the P/E ratio and if the value is over 1.0, then a stock is undervalued. If the value is under 1.0, then a stock is overvalued. By this measure, 21.3/12.7 (recent earnings growth/current P/E) gives a value of 1.7, and therefore they think the stock is undervalued. The report gives a value of 1.8, but the report is dated in September, and since the P/E ratio changes when the stock price changes, my figures are quite close to theirs.

There are few analysts that follow this stock, but I find one Buy and one Hold recommendation. So, together with the recent report I read, we will give this stock a consensus recommendation of Buy. This stock was listed in an article called 10 Gems For the Value Investor in October 2010. See blog and Globe and Mail article. There is an interesting article on Probiotics Viability in Fruit Juice and this company at Taste Magazine Cincinnati.

Lassonde Industries Inc. is a leading manufacturer of pure fruit juices and fruit drinks in Canada, and the largest manufacturer and distributor of apple juice in Eastern Canada. Through its subsidiaries, Lassonde is active in the processing, packaging and marketing of food products such as pure fruit juices, fruit and citrus drinks, the canning of corn on the cob for foreign markets as well as dipping sauces, fondue bouillon, meat marinades, barbecue sauces and baked beans. The Company also markets its know-how in Canada and abroad. Its web site is here Lassonde. See my spreadsheet at las.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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