Liquor Stores N.A. Ltd.

Sound bite for Twitter and StockTwits is: Price seems reasonable. I see this only as a buy in a turnaround scenario. But, I do not really think it is yet showing as a turnaround scenario. Personally, I would not buy this stock. For me to consider this stock, I would want to see improvement in Revenue per Shares, ROE and Book Value. See my spreadsheet on Liquor Stores N.A.

I do not own this stock of Liquor Stores N. A. Ltd. (TSX-LIQ, OTC-LQSIF). The idea of following this stock came from a reader of my blog.

One of the first things I noticed was growth in Revenue. Revenue growth is good, but Revenue per Share is not. Revenue growth over the past 5 and 10 years is at 5.2% and 16.8% per year. Revenue per Share is running at 1.2% and 0.7% per year over the past 5 and 10 years.

Not only has revenue slowed down a lot, but because they have raised a lot of money in share issues, there is extremely little revenue growth per share. Shares have grown strongly especially in the early years. Growth in shares runs at 4% and 16.1% per year over the past 5 and 10 years. There is nothing wrong with share growth, or selling shares to raise money per se, however you should also expect a reasonable growth in revenue per shares also.

The problem with Earnings and EPS is that they reached a peak in 2011 and have been sliding ever since. The reason for the large loss in 2015 is the write off Goodwill and Intangible assets. In 2014 Goodwill and Intangibles Assets were 77% of market cap. Analysts expect that the company will again have profits in 2016 and 2017.

In 2014 Goodwill and Intangible were 77% of market cap in 2014. After Goodwill and Intangible Asset write offs in 2016 and even though these values came down by over $100M, Goodwill and Intangibles are some 88% of market cap in 2016. This is because the stock price dropped in 2016 and therefore market cap dropped. Why you worry about high ratio of Goodwill and Intangibles Assets to Market Cap is because it signals these assets are not valued by the investors by as much as show on a company's balance sheet.

Liquor Stores Income Fund (TSX - LIQ.UN) converted to a corporation on December 31, 2010. At that time it decreased its dividend by some 33%. It was still paying way more than it was earning. In 2016 the dividends were cut again by some 67%. Because of the recent cut, it is expected that the Dividend Payout Ratio will be around 57% in 2017 when a full year of the lower dividend is paid.

This company did do some dividend increases after it became public in 2004. However, it remains to be seen if it can become a dividend growth company. You have to have growth in Revenue per Share to get growth in EPS and therefore in dividends.

Cash Flow per Share has been travelling south since 2011. The last financial year in 2015 is the first time that Cash Flow has increased. Cash flow has declined by 4.9% per year and has increased by 8.4% per year over the past 5 and 10 years. CFPS is down by 8.5% and 6.6% per year over the past 5 and 10 years.

One problem with this stock is that the Return on Equity has never even come close to 10%. The 5 year median is just 3.6%. The ROE is very low. It is expected to be one of the best ROE in 2016 at 7.7%. This is still not very good.

One of the positives is in the debt ratios. The debt ratios are good. The Liquidity Ratio for 2015 is 2.75. The Debt Ratio for 2015 is 2.28. The Leverage and Debt/Equity Ratios are also good at 1.78 and 0.78. Another positive is that insiders are buying. The Net Insiders Buying is at 0.30% of market cap and this is quite good.

The 5 year low, median and high median Price/Earnings per Share Ratios are 18.60, 21.62 and 24.63. The corresponding 10 year values are lower at 13.66, 16.22 and 20.71. The current P/E Ratio is 14.32 based on a stock price of $9.00 and 2016 EPS estimate of $0.62. This stock price testing suggests that the stock price is relatively cheap.

I get a Graham Price of $10.76. The 10 year Price/Graham Price Ratios are 0.81, 0.97 and 1.20. The current P/GP Ratio is 0.84. This stock price testing suggests that the stock price is relatively reasonable but below the median.

The 10 year median Price/Book Value per Share Ratio is 1.20. The current P/B Ratio is 1.08 based on BVPS of $8.30 and a stock price of $9.00. The current P/B Ratio is some 10% lower than the 10 year median ratios. This stock price testing suggests that stock price is relatively reasonable and below the median. One negative with BVPS is that it has declined by 7.8% per year and 1.7% per year over the past 5 and 10 years. This is not the direction you want it to go.

When I look at analysts' recommendations, I find Strong Buy, Buy and Hold recommendations. Most of the recommendations are a Hold, but the mean consensus would be a Buy. The 12 month stock price is $9.67. This implies a total return of 11.44% with 4% from dividends and 7.44% in capital gains.

I will have only one entry for this stock as I must do on some stock because I cover too many stocks to do double entries on all that I follow.

The last stock I wrote about was about was Intertape Polymer Group Inc. (TSX-ITP, OTC-ITPOF)... learn more . Tomorrow on my other blog I will write about something to buy for June 2016... learn more on Thursday, June 9, 2016 around 5 pm.

Liquor Stores N.A. Ltd. is a Canada-based operator of retail liquor stores. The Company operates over stores in Alberta, British Columbia, New Jersey, Alaska and Kentucky. Its web site is here Liquor Stores N.A.

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. I have three blogs. The first talks only about specific stocks and is called Investment Talk . The second one contains information on mostly investing and is called Investing Economics Mostly. My last blog is for my book reviews and it is called Non-Fiction Mostly. Follow me on Twitter or StockTwits.