Wednesday, June 5, 2013

Hammond Power Solutions Inc

On my other blog I am today writing about how the stock market is not a zero sum game...continue...

I own this stock of Hammond Power Solutions Inc. (TSX-HPS.A, OTC- HMDPF). I am reviewing this again, because I own it and the 2012 annual report is in. When I looked at in January 2013, the 2012 report had not yet been published. I bought this stock for my TFSA account in January 2013. At the end of last month, this stock was up some 17% per year and now it is up only 0.74% per year. The shares took a dive at the end of April. I suspect this was because this company missed EPS estimate for first quarter of 2013. The first quarter was not a good one for revenue and earnings.

The dividend is decent at 2.38% and the growth over the past 3 years is at 21% per year. However, the 3 year median dividend yield is just 1.4%. The last increase in dividends was for 11%. The Dividend Payout Ratios are good with 3 year median DPRs for earnings at 16% and for CFPS at 10%.

The outstanding shares have not changed over the past 5 and 10 years. They have increased due to stock options and decreased due to Buy Backs. Growth on most measures is very good. Revenue per Share is up by 9.6% and 12.8% per year over the past 5 and 10 years. Cash Flow is up by 7.5% and 29.3% per year over the past 5 and 10 years. However, if you look at Cash Flow growth using the 5 year running averages over the past 5 years, the growth is much better at 18.5% per year.

Return on Equity is generally good and over 10%, with the 5 year median at 12.4%. The ROE on Comprehensive Income can vary from the ROE on net income. The variance for 2012 was rather large at 24%, but after the 1st quarterly, ROE figures were different over the past 12 months by just 3%.

The debt ratios are current with current Liquidity Ratio at 1.52 and current Debt Ratio at 2.59. The current Leverage and Debt/Equity Ratios are also good at 1.66 and 0.64.

The 5 year low, median and high median Price/Earnings Ratios are 7.58, 9.29 and 11.22. The current P/E Ratio at 7.28 says the stock is cheap. This P/E is based on stock price of $8.30 and 2013 earnings of $1.14. I get a Graham Price of 15.08. The 10 year median Price/Graham Price Ratios are 0.46, 0.68 and 0.92. The current P/GP Ratio of 0.55 says the stock is reasonable. However, on an absolute basis, any P/GP of 1.00 or lower says the stock is at a very good price.

The 10 year Price/Book Value Ratio is 1.20 and the current P/BV Ratio is just 0.94, a value some 78% of the 10 year median and says the stock price is cheap. A P/BV Ratio of below 1.00 also says the stock is cheap. The 5 year median dividend yield is 1.40 and the current dividend yield of 2.41%, a value some 72% higher also says the stock is cheap.

There is only one analyst that I can find that is following this stock and he rates it as a Buy. His 12 months consensus stock price is $13.00. This implies a total return of 59.04% with 56.63% from capital gains and 2.41% from dividends.

I think that the stock is cheap. Unfortunately, I do not have enough cash in the TFSA to buy more shares at the moment. However, it is still not yet as cheap as I bought it in January. See my spreadsheet at hps.htm.

Hammond Power Solutions Inc. is the largest manufacturer of dry-type transformers in North America. They engineer and manufacture a wide range of custom transformers that are exported globally in electrical equipment and systems. They support solid industries such as oil and gas, mining, steel, waste and water treatment, and wind power-generation. Its web site is here Hammond.

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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