Tuesday, June 16, 2015

Hammond Power Solutions Inc. 2

Sound bite for Twitter and StockTwits is: Price is cheap to reasonable. To my mind you buy good companies when they are relatively cheap. For a small cap, I think that this stock has a very good chance of success. See my spreadsheet at hps.htm.

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.

Over the past year in insider trading there was $149,000 of insider buying and $88,000 of insider selling with net insider buying of $61,000 or 0.08% of the outstanding market cap. On a relative basis there is a lot of insider buying. There is some insider ownership with the CEO and Chairman owning shares worth $7.7M and around 9% of the outstanding shares.

The 5 year low, median and high median Price/Earnings per Share Ratios are 12.62, 16.79 and 20.96. They are lot higher than the corresponding 10 year Ratios of 7.47, 10.15 and 12.89. The current P/E Ratio is 14.66 based on a stock price of $6.89 and 2015 EPS estimate of $0.47. This stock price test suggests that the stock price is relatively reasonable.

I get a Graham Price of $10.43. The 10 year low, median and high median Price/Graham Price Ratios are 0.60, 0.77 and 1.01. The current P/GP Ratio is 0.66 based on a stock price of $6.89. This stock price test suggests that the stock price is relatively reasonable. Note that according to Graham when the P/GP Ratio is less than 1.00 then the stock is intrinsically undervalued.

The 10 year Price/Book Value per Share Ratio is 1.21 and the current P/B Ratio at 0.67 is some 45% lower. The P/B Ratio is based on a BVPS $10.28 and a stock price $6.89. This stock price test suggests that the stock price is relatively cheap.

The historical average Dividend Yield is 2.39% and the current Dividend Yield is some 46% higher than the current dividend yield of 3.48%. The current dividend yield is based on dividends of $0.24 and a stock price of $6.89. The historical median dividend yield is just 1.06% and the current dividend is some 107% higher. This stock price test suggests that the stock price is relatively cheap.

Note that dividend yield on this stock started low both in both percentage and Dividend Payout Ratios. Both have grown over the short time that this stock has paid dividends. The thing is you might wonder how valid this testing is.

The 10 year median Price/Sales Ratio is 0.44. This is a low P/S Ratio; in fact any P/S Ratio below 1.00 is rather low. The current P/S Ratio is 0.31 based on 2015 Revenue estimate of $257 or $22.18 Revenue per Share. The current P/S Ratio is some 30% lower than the 10 year P/S Ratio. This stock price test suggests that the stock price is relatively cheap.

As far as I can see only one analyst has given this stock a rating and it is a Hold. The target price given is $8.00. This implies a total return of 19.59% with 16.11% from capital gains and 3.48% from dividends.

On Market Wire Hammond Power Solutions announces first quarterly results saying they have solid bookings and backlog growth. Market Wire makes an announcement of a joint venture agreement between Hammond Power Solutions and National Material LP. On Guru Focus Ryan Irvine of KeyStone Financial gives a review of Hammond. Go to the bottom of the page.

This is the second of two parts. The first part was posted on Monday, June 15, 2015 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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