The North West Company 2

On my other blog I am today writing about an interview with a follower of my blog, Gord...continue...

I do not own this stock The North West Company (TSX-NWC, OTC-NWTUF). I wanted to review all the income trust stocks touted in the Money Show of 2009. (Tax changes for income trusts had already been announcement in October 2006.) There was a lot of talk at this show about some of the Unit Trust being currently good buys with very good yield.

There is little activity in insider trading with $0.4M of insider selling and minimal insider buying. This tells us nothing interesting. The CEO has shares worth $6.2M and has options worth $17.7M. The CFO has shares worth $1.3M and has options worth $2.1M. An officer has a few shares and has options worth $1.3M. A director has shares worth $0.4M and has options worth $0.4M. Two directors own substantial shares with one having shares worth $17.8M and another has shares worth $3.9M. This is just to give you an idea on insider share ownership and option values.

The 5 year low, median and high median Price/Earnings per Share Ratios are 11.12, 13.35 and 14.23. The current P/E Ratio is 16.79 based on 2013 Earnings of $1.39 and a stock price of $23.34. On a relative basis, this stock test suggests that the stock price is relatively high. However, P/E Ratios have been increasing lately and the P/E Ratios lows for 2011 and 2012 were 15.45 and 14.23. On an absolute basis a P/E Ratio of 16.79 is not particularly high.

I get a Graham Price of $13.97. The 10 year low, median and high median Price/Graham Price Ratios are 0.96, 1.22 and 1.46. The current P/GP Ratio is 1.36. This stock test suggests that the stock price is within the reasonable zone, but on the high side.

The 10 year Price/Book Value per Share Ratio is 3.07 and the current P/B Ratio is 3.74 based on a stock price of $23.34. The current P/B Ratio is some 21% higher than the 10 year median Ratio and this suggests that the stock price is getting rather high.

I cannot do a test on dividend yield as the dividends have moved down recently due to the change in the company from an income trust to a corporation. It was felt that yields for these companies would probably end up in the 4% to 5% range and with the current yield at 4.8%, this is certainly were this yield is.

If you look at Price/Cash Flow per Share Ratio, the 5 year P/CF Ratio is 8.33 and the current P/CF Ratio is some 77% higher at 14.77. If you look at Price/Sales Ratios, the 5 year P/S Ratio is 0.59 and the current P/S Ratio at 0.74 is come 26% higher. On an absolute basis, a good price is when the P/CF Ratio is 5.00 or below and the P/S Ratio is 1.00 or below. On a relatively basis, both these tests show that the stock price is relatively high.

When I look at analysts' recommendations, I find Buy and Hold recommendations, with the majority being a Hold recommendation. The consensus recommendation would be a Hold. The 12 month stock price consensus is $24.60. This implies a 12 month total return of 10.2% with 4.8% from dividends and 5.4% from capital gains.

The newspaper The Winnipeg Free Press talks about the company having slightly higher profits in the 2nd quarter. A G&M article by Validea Canada talks about this company scoring high with a Buffett model.

I think that this is a good company, but the stock price is certainly not cheap and it is marginally if the price is reasonable. Analysts like the good yield and one analyst said that he did not think that the stock was yet overpriced at $23.10. However, I do not think that now is a good time to buy. See my spreadsheet at nwc.htm.

This is the second of two parts. The first part was posted on Tuesday, October 1, 2013 and is available here.

The North West Company is a leading retailer of food and everyday products and services to rural communities and urban neighborhoods in Canada, Alaska, the South Pacific and the Caribbean. North West operates 225 stores under the trading names Northern, NorthMart, Giant Tiger, AC Value Center, and Cost-U-Less. Its web site is here North West Company.

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.