Waterfurnace Renewable Energy Inc 2

On my other blog is some comment on "Price/Earnings Ratios". See comments blog.

I do not own this stock of Waterfurnace Renewable Energy (TSX-WFI). I started reviewing this stock in February 2009 because I saw it being reviewed in the Investment Reporter. See their site here. At that time they thought that it was a risky investment, but it is a buy for capital gains and dividend income.

When I look at the insider trading report for the past year, there is both insider buying and insider selling, but both of very minimal amounts. This tells us nothing. There are some options outstanding but of a very minimal amount. Insiders own some shares, and looking only at the ones with the largest number of shares, I get insider with 12% plus in company shares. There are a number of insiders who own a few million dollars in shares.

There are 19 institutions that own about 34% of the outstanding shares. Over the past 3 months they have increased their shares by 1.5%.

I get 5 year low, median and high Price/Earnings Ratios of 16.74, 19.13 and 23.39. The current P/E ratio of 13.27 on a stock price of $16.06 is relatively low. This low P/E shows a relatively very good stock price. However, a P/E Ratio of 13.27 is, in absolute terms, a reasonable ratios rather than a low one.

I get a current Graham price of $9.53. The 10 year low, median and high P/GP Ratios are 1.92, 2.53 and 3.06. The current P/GP Ratio of 1.69 shows a relatively low current stock price. However, in absolute terms, for a stock is to be considered low, it would have to be at or lower than the Graham Price.

The 10 year Price/Book Value Ratio is 7.95. The current one of 3.33 is only 60% of the 10 year ratio. However, a P/B Ratio of 7.95 is quite high. 3.33 is a more reasonable ratio.

On a relative basis the current stock price is low; however, on an absolute basis it is closer to reasonable.

There only appears to be only a couple of analysts following this stock. One gives a Strong Buy recommendation and one gives a Hold recommendation. This would give a consensus of a Buy recommendation.

Consensus 12 month Stock price is $22.86, with one of $21.96 and one of 23.87. The 12 months price of $21.96 would give a total return of 42.7%, with 36.7 from capital gain and 6% from dividends. They both assume a good price recover in the next 12 months.

There is a good article on this stock at Canadian Financial DIY. This article states that there could be increased pressure from Natural Gas. Article also questions big recent salary increases and Warranty provisions. See also an article on Heat Pumps at Renewable Energy network.

From my analysis, the stock price seems reasonable and relatively low. Dividend yield is currently very good at 6%. I see no reason why dividend might be cut as DPRs are fine and this stock's debt levels are quite low. However, stock is still rather risky. Insiders own shares and managements have expressed its faith in this company with the 9.1% dividend increase in 2011.

Waterfurnace Renewable Energy Inc. is a manufacturer and distributor of residential and commercial geothermal and other water source heating and cooling systems. This is an international company with 80% of its revenue from the US. It has revenue from Canada of just over 16% and the rest of the world under 3%. Its web site is here Waterfurnace. See my spreadsheet at wfi.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.