Tuesday, November 29, 2011

Stella-Jones Inc 2

I want to finish talking about the stock Stella Jones Inc. (TSX-SJ) today. This is my last Industrial sector stock to talk about and tomorrow, I will summarize what Industrial stocks I do track. As to Stella-Jones, I do not own this stock (TSX-SJ), but maybe I should. Really, what is not to like about this stock? It has great growth, very good debt ratios, good ROE.

Over the past year, CEO, CFO, Officers and directors have done insider selling to the tune of $2.9M. There has been no insider buying. However, this selling is only worth just under ½ of 1% of the value of this company. Some 13 institutions own 16% of the shares of this company. Over the past 3 months there has been some buying and selling, with these institutions lowering their outstanding shares by less than 1%. Also, you should note that the company of Stella Jones International S.A. owns just over 51% of the shares of this company.

The 5 year low median Price/Earnings Ratio is 7.78 and the 5 year median high is 14.73. The current P/E Ratio of 11.83 is just below the 5 year median P/E Ratio of 12.00. This test shows that the stock price is a reasonable price.

The Graham Price is $39.13, so the current stock price of 39.52 is just 1% higher. The median difference between the Graham Price and the stock price is the stock price being 14% lower. The high difference between the Graham Price and the stock price is the stock price being 14% higher. So the current stock price is between the median and a relatively high stock price.

I get a 10 year median Price/Book Value Ratio of 1.55. The current P/B Ratio is higher by 25% at 1.94. This would point to relatively high stock price. The P/B Ratio tends to fluctuate a lot. The 5 year median P/B Ratio at 1.88 is closer to the current one, but it is still lower by around 3%.

The last test is with the dividend yield. The current dividend yield is 1.32% and the 5 year median dividend yield is 5% lower at 1.26%. This would suggest a current reasonable stock price. For all the tests, the stock price seems reasonable, expect for the P/B Ratio, where the stock price seems a bit high.

The analysts’ recommendations are Strong Buy, Buy and Hold. The consensus recommendation would be a Buy. The Buy recommendation comes with a 12 month stock price of 46.07, a price about 17% higher than today’s price. Also, note that Stella-Jones beat the last two quarterly EPS estimates. One analyst report dated 16 November 2011 says that Stella-Jones “remains a buy for long-term gains and rising dividends”.

There is a recent Globe and Mail article on Stella Jones called Stella-Jones forecasting growth despite uncertainty. There is also an article in Forest Talk on Stella Jones.

To me, this company looks like a good one. The price is probably reasonable. Based on today’s dividend yield, if purchased at $39.52 you could be earning just over 4% in 5 years’ time and 14% in 10 years’ time if dividends continue to increase by 30% a year less 3% assumed inflation.

Stella-Jones Inc. is a leading North American producer and marketer of industrial pressure treated wood products, specializing in the production of railway ties and timbers as well as wood poles supplied to electrical utilities and telecommunications companies. The Company also provides treated consumer lumber products and customized services to lumber retailers and wholesalers for outdoor applications. Other products include marine and foundation pilings, construction timbers, highway guardrail posts and treated wood for bridges. It has sales in Canada and US. Its web site is here Stella Jones. See my spreadsheet at sj.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.


  1. Stella Jones- one trick pony?
    The primary business is pressure treated wood for industrial useage. A narrow demand. Other products ie. cement & plastic are increasingly used/researched for railway. Koppers, a competitor, has other business interests in carbon products. Stella Jones pays a divi semi annual...this may not be tasty to income divi watchers. Can Stella Jones keep up the acquisiton pace? Is Stella Jones already market priced out, awaiting a long sideways move? Cheers!

  2. Yes, it can be described as a One trick Pony. This does increase the risk of owning this stock. However, it does not mean you cannot make money from it, nor that it will go necessarily go belly up.