Monday, August 27, 2012

The North West Company 2

On my other blog I am today writing about what to read for novice investors. I think that if you want to learn about investing today I would suggest reading some blogs rather than any particular book. Some of my favourite investment bloggers are continue....

The stock I am talking about today is the North West Company (TSX-NWC), a company I do not own. At the 2009 Money Show, a number of people where talking about some former, or soon to be former, income trusts being very good investments. This was one company that people were talking about. The dividend yield at that time was 7%.

Lots of insider own shares and some own shares worth into the millions. However, insiders own a very small portion of this company's outstanding shares. Over the past year there has not been much in the way of insider trading. Insider buying is $0.4M and insider selling is $0.6M, leaving a net of insider selling of $0.2M.

There are 39 institutional owners that hold some 28% of the outstanding shares. Over the past 3 months they have sold just over 1% of their shares. This is not enough to be a negative.

The 5 year low, median and high median Price/Earnings Ratios are 11.12, 12.67 and 14.23. The current P/E Ratio of 15.85 on a stock price of $21.40 is rather high and suggests that the current stock price is rather high. Part of the problem is that the financial year ending January 2012 was not that great but the earnings are expected to climb over the next couple of years.

I get a Graham Price of $13.36. The 10 year low, median and high median Price/Graham Price Ratios are 0.93, 1.15 and 1.35. The current P/GP Ratio of 1.60 on a stock price of $21.40 also suggests a relatively high current stock price.

I get a 10 year median Price/Book Value Ratio of 2.92. The current P/B Ratio is 3.64 a value that is some 24% higher. This also suggests a rather high current stock price.

The 5 year median dividend yield is 7.09%. The current yield of 4.86% is some 31% lower. Usually a lower dividend suggests a rather high stock price. However, this company used to be an income trust. It was expected that old income trust companies would end up with dividend yields between 4 and 5%. This yield is closer to the 5% and would suggest that perhaps the stock price really is not that high.

There are number of analysts following this stock and all their recommendations are a Hold recommendation. Therefore, the consensus recommendation would be a Hold. The 12 month consensus stock price is $22.30. This implies a 9.07% total return with 4.86% from dividends and 4.21% from capital gains over the next year.

One analyst with a Hold recommendation worried about the current economic climate. Many people feel we might be heading for another recession. There is also the worry of competition, especially from Target. Here is what Desjardins Securities analyst John Hughes said about this company in June 2012. Here is what CIBC said about this stock in March 2012. This company is also mentioned in a numbers cruncher article entitled "Low-volatility dividend stocks for stormy times" in the G&M.

The stock price is relatively high, but it is not in an unreasonable range. The dividend yield is quite good. The mitigating circumstance is that old income trust were expected to having raising stock prices and/or lowering dividends to get to a 4% to 5% dividend yield range. This company has used decreased dividends (they were lowered some 30%) to get into this dividend yield range. However, stock price has risen a bit, but higher P/E Ratios is also due to lower EPS.

It is a bit pricey and we might be heading into a recession. Also, October is coming and often we get lower markets in the fall. I would think that if you want to buy this stock, you might get a better price in the fall. However, you are also taking a chance as dropping prices in the fall do not always occur for all stocks.

The North West Company is a leading retailer of food and everyday products and services to rural communities and urban neighborhoods in Canada, Alaska, the South Pacific and the Caribbean. North West operates 225 stores under the trading names Northern, NorthMart, Giant Tiger, AC Value Center, and Cost-U-Less. Its web site is here North West Company. See my spreadsheet at nwc.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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