Leon's Furniture Ltd 2

On my other blog I am today writing about Portfolio Theory continue...

I own this stock of Leon's Furniture Ltd. (TSX-LNF, OTC-LEFUF). I had some money in 2006 and this stock has been on MPL Communication's Investor Reporter list for some time. It was also on Mike Higgs' Dividend Growth Stock list. I bought some in 2006 and then some more in 2008, 2009, 2010 and 2013.

Over the past year the insider trading report shows $2.6M of insider selling and $2.5M of net insider selling. There is a minimal amount of insider buying.

How insiders seem to get stock options is that they get non-voting shares that can be exchanged for voting shares. In 2013, 70,000 non-voting shares were exchanged for voting shares and increased the number of outstanding shares. The book value of these shares was at $659,000 and this numbers of shares was worth $979,000 at the end of 2013.

There is insider ownership with the CEO owning shares worth around $13M, the CFO owning shares worth around $2.9M and the Chairman owning shares worth around $1.9M. Also, the Leon family owns around 70% of the outstanding shares.

The 5 year low, median and high median Price/Earnings per Share Ratios are 13.45, 15.17 and 17.13. These are slightly higher than the 10 year low, median and high median P/E Ratios. The current P/E Ratio is 14.25 based on a stock price of $14.25 and 2014 EPS estimates of $1.00. This stock test suggests that the stock price is reasonable and towards the lower end of the reasonableness range.

I get a Graham price of $11.91. The 10 year Price/Graham Price Ratios are 1.07, 1.22 and 1.38. The current P/GP Ratio is 1.20. This stock test suggests that the stock price is reasonable and towards the lower end of the reasonableness range.

I get a 10 year Price/Book Value per Share Ratio of 2.18. The current P/B Ratio is 2.08 based on a stock price of $14.25 and a BVPS of $6.86. This stock test suggests that the stock price is reasonable and towards the lower end of the reasonableness range.

I get a 5 year median dividend yield of 3.01% and the current dividend yield is some 6.6% lower at 2.81%. This stock price test says that the stock price is reasonable, but is on the pricy side of the reasonableness range.

However, if you look at historical dividend yield, the average dividend yield is 2.28% and the current dividend yield of 2.81% is some 23% higher. The historical median dividend yield is even lower at 1.82% a value some 54% lower than the current dividend yield. This stock test suggests that the stock price is reasonable to cheap. However, it has been cheaper as the historical high dividend is around 3.23%.

There is an article in the Toronto Star that talks about the company's profit being down in the first quarter of 2014 because of extreme weather. There is a recent Forbes article saying that Leon's stock is oversold. (The term oversold means that the stock price is low.) A blogger called Average Dividend Yield did a review of this stock last year.

I do not plan to purchase more of this stock at present, but I am satisfied with this stock at present and I have no desire to sell any of it. I think that it will take some time for the company to absorb The Brick Ltd. furniture company. See my spreadsheet at lnf.htm.

This is the second of two parts. The first part was posted on Friday, May 23, 2014 and is available here. The first part talks about the stock and the second part talks about the stock price.

This company sells home furnishings, appliances and electronics through a chain of retail facilities and franchises located in Canada. Leon family owns 68% of this company. Its web site is here Leon's Furniture.

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. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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