Wednesday, November 10, 2010

Forzani Group Ltd 2

I have been following this stock (TSX-FGL) since 2008, because it has been recommended as a good dividend paying stock. They started to pay dividends in 2008. I think that this would be a more interesting stock when (and if) it starts to increase their dividends.

The first thing I like to look at is Insider Trading. Over the past 12 months, there has been $1.4M of Insider Selling and a little bit of Insider Buying. None of this tells us much. On the stock, it is only the CEO that has a lot more options than stock. The other thing to mention is that Forzani is buying back stock for cancellation. Some people like this, but I would rather that extra money be spent on dividends than buy backs, but this is just a personal opinion.

When I look at historical P/E ratios, I get a 5 year median low of 10 and a 5 year median high of 17.9. The current P/E ratio of 13.4 is not bad from an historical point of view. The next thing to look at is the Graham Price. I get a current one of $17.42. It is higher than the Graham Price for the end of the financial year of January 2010 of $15.66 because this company is expected to have earnings growth of 30% this year over last year. The Graham price is 5% higher than the stock price and this is good.

When looking at the Price/Book Value, I get a 10 year average of 1.75 and a current P/B of 1.51. The current ratio is less than 80% of the 10 year average and so this points also to a good current stock price. Really, the only thing that does not point to a good current price is the dividend yield. It is just 1.8%. The 3 year average is 2.9%. The problem is the dividend has remained flat since this stock has starting paying dividends. It is expected that they will be paying out only some 24% of earnings in dividend, so they could improve it. There have been US studies that show the best long term returns are from dividend paying stock that have yields between 2.5% and 4.5%.

So what do the analysts say? The only recommendations I find are Strong Buy, Buy. The consensus is probably a Buy; however, there are a lot of Strong Buy recommendations on this stock. (See my site for information on analyst ratings.) I cannot find much written about this stock, but a few analysts think that it is riskier than other consumer stocks.

It is expected that over the next 12 months, the stock price will go to $19, and that together with a dividend of 1.8%, this stock will give you just under 17% return over the next 12 months. As I have said before, I like dividend stocks that increase their dividends. So far, this stock has not, so it is not something I am interested in at the moment. I will continue to track it.

The Forzani Group is a Canadian retailer of sporting goods, offering an assortment of brand-name and private-brand products through stores under corporate and franchise banners. Their corporate banners include Sport Chek, Sport Mart, Coast Mountain Sports, National Sports, Athletes World and Hockey Experts. The franchise banners include Sports Experts, Intersport, Atmosphere, Nevada Bob’s Golf, Hockey Experts, Fitness Source, Pegasus, RnR, S3, Tech Shop and Econosports. Its web site is here Forzani. See my spreadsheet at fgl.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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