Thursday, April 18, 2013

Automodular Corp

I own this stock of Automodular Corp. (TSX-AM, OTC-AMZKF). Since January of 2012 I have used this small dividend paying small cap to use up small amounts of money in my TFSA. This includes money left after my main purchases in January and dividend income of this account.

I have some more dividend income at the moment, but I am just wondering if this stock will go lower in the current correction that seems underway. We are dealing with small amounts of money here, so the reason to do this is fun. To the end of March 2013 I have made a return of 104.23% per year, with 28.24% per year coming from dividends and 75.99% per year coming from capital gains.

As far as dividends go, this company paid dividends from 1992 to 2003 and then stopped. They paid a couple of dividends in 2008 and then a special dividend in 2010 and then restarted dividends in 2011. Note that there have been a number of years when this company paid special dividends. Recently special dividends were paid in 2010, 2011 and 2012.

This company did ok in the 2000 bear market and but did suffer in the 2008 bear market. Being in the automotive sector, you would expect the company to suffer in any recession. (Often recessions are started after a bear market starts, as occurred after the 2000 and 2008 bear markets.)

Shareholders that have held this stock for 10 years have not made any money. However, those that have held it for 5 years have. Over the past 5 years capital gains is only at 0.81% per year and dividends were at 14.24% per year giving a total return of 15.05% per year. All the money was from dividends and basically the dividends were special dividends.

There has been some growth in revenue and cash flow in the last 5 and 10 years. The really good growth has been in earnings. (Earnings growth over the past 5 years is at 20% per year.) Shares have decreased over the past 5 years at 4.8% per year and have increased over the past 10 by 4.1% per year. Shares have increased due to stock options and decreased due to buy backs. Currently there is not much in the way of options outstanding.

I get 5 year low, median and high median Price/Earnings Ratios of 1.18, 2.43 and 3.52. The only earnings we have are for last 12 months to December 2012 and that is at $0.82. The current stock price of $2.76 gives us a P/E of 3.37. I get a Graham Price of $6.12. The 10 year low, median and high median Price/Graham Price Ratios are 0.21, 0.47 and 0.66. The current P/GP Ratio is 0.45. On an absolute basis, these ratios are low. On a relative basis, the ratios just say that the stock price is reasonable.

The 10 year Price/Book Value per Share Ratio is 0.96 this is a low P/B Ratio. The current ratio at 1.36 is a reasonable ratio, but it says that the price is relatively high.

The last thing to look at is the dividend yield. Perhaps on a historical basis the dividend yield 8.70% is relatively good. However, the dividend yields of the last couple of years suggest that the stock price is reasonable as the median dividend yield is 8.75% over this period.

There is some insider ownership. The biggest ownership seems to be Franklin Templeton Investments Corp. with 23% of the outstanding shares worth currently around $12M. There does not appear to be any stock options outstanding currently.

There is a rather long and interesting review of this stock by a blogger called Rate Race Freedom. There is another interesting review on the blog Odd Ball Stocks. I cannot find any analysts following this stock.

The question on this stock is can it survive a severe downturn that will probably come before we get out of the current secular bear market. I held some small caps going into the first decline of this secular bear market in 2000 and they were all shattered in some way. I have dividend paying small caps now instead of just small caps, but I do not know if that will make a difference.

It might be an interesting ride. Of course, some of my initial basket of small caps only had revenue, but not much of earnings or cash flow. This is not the case with my current basket of small caps. My current small caps have revenue, earnings, cash flow, book value and dividends.

I think that this company has potential, has very good dividends, but it is risky. Also, the current price of $2.76 is a reasonable price. However, if a nice correction is coming, you might be able to pick this up at a very good price. See my spreadsheet at am.htm.

Automodular Corporation is a supplier of sub-assembly, sequencing and transportation services to the automotive industry - Ford's Oakville Assembly Plant and the renewable energy industry with Vestas Nacelles A/S. Its web site is here Automodular.

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.

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