Coast Wholesale Appliances Inc

I am putting up on my other blog my notes from the World Money Show 2013 in Toronto. I will put up these notes as I transcribe them here.

I do not own this stock Coast Wholesale Appliances Inc. (TSX-CWA, OTC-CWSAF). This is a small cap dividend paying stock I picked up from Rise of a Millionaire blog (he is also tsxsmallcaps at StockTwits). See his blog.

When I first reviewed this stock, I was negative about it because the dividends hit a peak in 2007 and had been travelling south ever since; Dividend Payout Ratios were too high; earnings were declining; cash flow was declining; Liquidity Ratio was rather weak at just 1.03; Gross Profit Margin was declining; and Goodwill was over 100% of the stock's market capital (even after some write-offs in 2011). I saw this stock as having a lot of risk, but not much potential upside.

A couple of things stand out when I updated my spreadsheet for 2012. First they skipped one monthly dividend payment in January of 2013 and decreased the dividend at the same time. (Note also that they had only 10 dividend payments in 2011.) Dividend decrease is at 19% per year over the past 5 years. That may have made a profit in 2012, but the cash flow was negative. The Goodwill in the balance sheet is 149% of the market cap at the end of the 2012 financial year.

The Liquidity Ratio has been falling lately and for 2012 it is only 1.09. It did rise for the second quarter of 2013 to 1.12. This is still subpar, and also lower than for 2011. The Debt Ratio is also falling but at 2.41, the ratio is still quite good. The Gross Profit Margin is still declining, so it is still going the wrong way.

Analyst think there will be improvements in revenue, earnings and cash flows for 2013. Looking at the last 12 months to the end of the 2nd quarter, revenue and earnings are improving basically in line with the analyst's forecasts. However cash flows are not.

When I reviewed this stock last year, the dividend yield was 11.86%. Today this yield is at 8.36% based on a stock price of $3.59. The stock price has increased by 33% this year so far.

Shareholders are starting to earn money on this stock with total returns to date at 16% per year and 5.69% per year over the past 5 and 10 years. Most of the return is in dividends, as the portion of this return attributable to dividends is 13.68% and 13.89% per year over the past 5 and 10 years. The capital gain over the past 5 years is 2.33% per year and the capital loss over the past 10 years is at 8.20% per year.

On an absolute basis, this stock is cheap. The P/E is just 6.77, the Price/Book Value per share is still way below 1.00 at 0.62 and the Price/Graham Price Ratio is just 0.43.

Last year there were three analysts that followed this stock. Today, there is only one and the recommendation is a Hold. His target price is $3.00, which is a price some 16.4% below where the price is today.

The blogger Guinness in August of this year said she like this stock and was buying some. The site Zolmax said in August of 2013 that BMO capital was upgrading this stock from and underperform to a market perform (Hold) rating.

I still see this stock as having lots of risk and not much potential. I do not like the fact that they have skipped dividends some years (in 2011 and first dividend of 2013). I think that this shows lack of planning on the part of management. See my spreadsheet at wca.htm.

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.

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.