Friday, June 13, 2014

Hammond Power Solutions Inc. 2

I own this stock of Hammond Power Solutions Inc. (TSX-HPS.A, OTC-HMDPF). I bought this stock as my main purchase for the TFSA in 2013 and 2014. I picked Hammond initially in 2013 as my main buy because it has good growth and reasonable dividend.

When I look at insider trading, I find a small amount of insider buy ($170,000) and an even small about of insider selling with a small net of insider buying at $98,654. They have stock options, but there is not much in the way of stock options given out.

Bill Hammond as CEO and Chairman owns shares worth around $7.3M and almost 9% of the company. He also owns Arathorn Investments Inc. which holds all the company's Class B shares, which are the multiple voting shares with 4 votes per share. The Class B shares are worth around $22.7M or around 24% of outstanding shares.

The 5 year low, median and high median Price/Earnings per Share Ratios are 10.96, 12.77 and 14.57. These are higher than the 10 year ratios. The current P/E Ratio is 16.41 based on a stock price of $9.19 and 2014 EPS estimates of $0.56. This stock price test suggests that the stock price is relatively expensive. On an absolute basis, a P/E of 16.41 is not very high.

I get a Graham Price of 10.96. The 10 year low, median and high median Price/Graham Price Ratios are 0.56, 0.69 and 1.01. These are all very low ratios and on an absolute basis, a P/GP Ratio of 1.00 and below says the stock's price is low. The current P/GP Ratio is 0.84. This stock price test suggests that the stock price is relatively reasonable, although the price is in the higher part of the reasonableness range.

The 10 year Price/Book Value per Share Ratio is 1.21 and the current P/B Ratio is 0.96. The current P/B Ratio is some 21% below the 10 year ratio and this stock price test suggests that the stock price is relatively cheap. Also on an absolute basis a P/B Ratio less than 1.50 suggests a good or low stock price.

The 5 year median dividend yield is 1.48% and the current dividend yield at 2.61% is some 76% higher. This stock test suggests that the stock price is relatively cheap. Even the average yield at 1.88% is some 32% below the current dividend yield and suggests that the stock price is relatively cheap.

In December 2012, a Keystone's Small-Cap Stock Report said they this company is a long term buy. They also thought that there might be some near-term volatility in the share price.

There seems to be only one analysts following this stock has the recommendation given is a Buy. However, the 12 month stock target price is just $9.00. This is 2% below the current stock price. The stock has been rising quite well since the low price $6.62 in December 2013 and it is up some 39%.

On a number of measures it would seem that the current stock price is relatively reasonable. See my spreadsheet at hse.htm.

This is the second of two parts. The first part was posted on Thursday, June 12, 2014 and is available here. The first part talks about the stock and the second part talks about the stock price.

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 Power Solutions.

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.

See my website for stocks followed and investment notes. Follow me on Twitter or StockTwits.

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