Friday, September 7, 2012

Coast Wholesale Appliances Inc 2

I do not own this stock Coast Wholesale Appliances Inc. (TSX-CWA). This is a small cap dividend paying stock I picked up from Rise of a Millionaire blog. See second paragraph of of this entry of August 18, 2012 and see second last paragraph of this entry dated April 29, 2012. I decided to explore this stock further. So what did I find?

Over the past year there has been a minimal amount of insider buying and insider selling accounting to insider trading reports. There are no stock options. Insider owns some shares, but not a lot. The CEO has around $40,000 of shares and an officer holds shares worth around $500,000.

The only institutional owner I can find is CWAL Investments Ltd. (formerly Coast Wholesale Appliances Ltd.) This company owns around 37% of the outstanding stock in this company. As far as I can see the CFO and one Director of this CWAL Investments Ltd is the same as for this company. It would seem that there is more insider ownership than might first appear. However, I find it disconcerting that it is very difficult to find out much information on CWAL Investments Ltd.

The 5 year low, median and high median Price/Earnings Ratios are 6.54, 8.31 and 10.18. These are low P/E Ratios absolutely, but this is also a thinly traded small cap so these ratios are not surprising. I get a current P/E Ratio of 9.83 on a stock price of $3.54 and 2012 earnings of $0.36. This shows the stock price is towards the high of its range.

I get a Graham Price $6.74 and the 10 year low, median and high median Price/Graham Price Ratios are 0.38, 0.55 and 0.64. The current P/GP Ratio is 0.52. This shows a relatively reasonable stock price. If the P/GP ratio is below 1.00, it means the stock price is below the Graham Price. Generally, the stock is considered to be underpriced, or of good value when this ratio is at or below 1.00.

I get a 10 year median Price/Book Value Ratio of 0.59. The current P/B Ratio is some 7% higher. This means that the stock price is reasonable. Also, a stock is considered to be underpriced when the P/B Ratio is below 1.00.

The 5 year median dividend yield is 13.36% and the current dividend yield is 11.86. The current yield is some 11% higher than the 5 year median yield. To show a good or cheap stock price you want the current yield below the 5 year median dividend yield. The current one is not that far off the 5 year median, so you could consider the stock price reasonable.

The results of my stock price tests are mixed. It would seem that investors have always assigned a relatively low stock price to this company. Investors seem to be consistently underwhelmed by the company. You can see this is the high dividend yield and very low P/B and P/GP Ratios. Investors have never felt good about the goodwill on the books, giving this company a market cap always less than the goodwill alone of all the assets.

When I look at analysts' recommendations I find a Hold, an Underperform and a sell. The consensus recommendation would be an Underperform recommendation. The 12 month consensus stock price is $3.68. This implies a total 12 months return of 15.81, with 11.86 from dividends and 3.95% from capital gains.

So is this stock underappreciated or are investors non-impressed for a reason. It would be nice to be able to point to some growth somewhere. Analysts are expecting some growth in sales over the next two years at 5.8% and 3%, respectively. But this is not good growth. I am afraid I see this stock as having a lot of risk, but not much potential upside.

Coast is a leading independent supplier of major household appliances and accessories. Headquartered in Vancouver, British Columbia, we sell to developers and builders of multi-family and single-family housing, designers and retail customers. Its web site is here Coast Wholesale Appliances. See my spreadsheet at cwa.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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