Exco Technologies Ltd 2

On my other blog I am today writing about the return on equity (ROE)...continue...

I do not own this stock of Exco Technologies Ltd (TSX-XTC, OTC- EXCOF). This is a stock given as a recommendation by Keystone at the Toronto Money Show of 2012. I decided to check into it as it is a small tech company that is paying dividends. Also, I decided to review this stock because Keystone has recommended some very good stocks in the past.

When I look at insider trading I find $1M and insider selling and $0.4M of insider buying with $0.6M net insider selling. Insider buying was both bought at lower and higher stock prices than insider selling, so this tells us nothing. Some of the selling is of stock options. The company is also buying back and cancelling shares.

The CEO has shares worth $56M, and his options are worth $0.7M. The CFO has shares worth $1.5M and options worth $0.5M. An officer has shares worth $0.3M and options worth $1M. A director has shares worth $0.1M and has options worth 0.2M. This is just to give you an idea on insider share ownership and option values. If you look at insiders with large holdings, these holding add up to 36% of the outstanding shares.

The 5 year low, median and high median Price/Earnings Ratios are 7.00, 7.13 and 8.83. These are very low. The P/E Ratio may not be a good measure as there have been a number of years lately of very low and negative earnings. The current P/E Ratio is 9.00 based on a stock price of $5.85 and a 2013 EPS of $0.65. This is a low P/E Ratio and so suggests a good stock price.

I get a Graham Price of $7.33. The 10 year low, median and high median Price/Graham Price Ratios are 0.82, 1.20 and 1.47. However, these Ratios have all been under 1.00 over the past 3 years. The current P/GP Ratio of .080 is low on a relative basis and low on an absolute basis. (Any ratio at or below 1.00 is considered low.)

I get a 10 year median Price/Book Value per Share Ratio of 1.14. The current ratio is 1.59. The current one is some 40% higher than the 10 year median ratio. This is not surprising as the book value has been fall because of negative earnings.

I would take more seriously the dividend yield test. The 5 year median dividend yield is 3.16%. The current is almost 3% lower at 3.08%. The company has been increasing the dividend at a very good clip lately and the relative dividend yield is lower than the 5 year dividend yield, but it is quite close. This would suggest that the stock price is reasonable.

The way I look at stock price testing is that if there are inconsistent outcomes, and there is no good reason to disregard the dividend yield test, you should go with the dividend yield test. This says that the stock price is relatively reasonable.

When I look at analysts' recommendations, I find two, a Strong Buy and a Buy. There is not many analysts following this stock. The 12 month consensus stock price is $6.63. This implies a total return of 16.41%, with 3.08% from dividends and 13.33% from capital gains.

The Jags report talks about Canaccord Genuity rising its target price on this stock from $6.50 to $6.75 on February 1, 2013. The Canadian Dividend Blogger talks about this stock being on his list of high dividend growers. According to the Edmonton Journal BMO listed this company as one of their top Canadian Small Cap picks for 2013.

I can see why people like this stock. It has very good dividend growth and dividend is at a nice 3%. The current stock price seems reasonable. However, it is a small cap stock and it is an industrial stock in the auto industry, so it is risky. However, it has very good debt ratios and with a large insider ownership. I do not see them increasing the dividends beyond what can be afforded.

Exco is a global designer, developer and manufacturer of dies, moulds, equipment, components and assemblies to the die-cast, extrusion and automotive industries. The Die Casting and Extrusion Technology groups operations are based in Canada, U.S., Mexico and Colombia and primarily serve automotive and industrial markets throughout the world. The Automotive Solutions Group has facilities are located in Canada, U.S., Mexico and Morocco and supply the North American, European and Asian markets. Its web site is here Exco. See my spreadsheet at xtc.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 or StockTwits.