Monday, September 28, 2020

Le Chateau Inc

Sound bite for Twitter and StockTwits is: Consumer Sector Stock. The stock price is relatively cheap. However, it stopped paying dividends in 2011. The company continues to lose money and sales are declining. They are putting some blame on Covid lockdown, but Sales have been declining since 2011. Currently the Book Value is negative. See my spreadsheet on Le Chateau Inc.

I do not own this stock of Le Chateau Inc (TSX-CTU, OTC-LCUAF). In June 10, 2012 I started spreadsheet because of a request from Blog reader. It was also on my list of dividend and special dividend paying stocks. Jennifer Dowty wrote a column on Dividend Paying stocks in 2010. Jennifer is now an investor reporter for the Globe and Mail. The title of the article in Investor’s Digest was Dividend Stocks: Buy, Hold and Collect. The Investor’s Digest is a publication of MPL Communications.

When I was updating my spreadsheet, I noticed this company continues to lose money and the revenue is still declining. They started to have earnings losses from 2011. It was in deep trouble before the Covid Lockdowns and I would think that the lockdowns will be very hard on this company.

It is interesting that shareholders that have held this stock for a very long time have made money but just because dividends were paid. Shareholders who have held this stock for 20 plus year have a Total Return that is positive (example 13.49% per year for 20 year holders), but stock price is lower than what it was then and even what it was 27 years ago.

This stock no longer pays any dividend. They were suspended in 2011. They had to cut their because they paid out too much of their earnings in 2010 and then had an earnings loss in 2011. They have had earnings losses since 2011 and so they will not be paying any dividends anytime soon.

The company cannot afford to pay dividends so there are no Dividend Payout Ratios (DPR).

Debt Ratios are awful. The Long Term Debt/Market Cap Ratio was very high since 2015, but now all their long term debt is on their balance sheet as the current portion of the long term debt as they are due within one year. The Liquidity Ratio for 2019 is 0.64 and with cash flow is 0.88. They do not say how they will cover the debt due in one year. The Debt Ratio is 0.66. This means that the book value (or breakup value) of the company is negative. Leverage and Debt/Equity Ratios cannot be calculated when the book value is negative.

The Total Return per year is shown below for years of 5 to 27 to the end of 2019. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.

From Years Div. Gth Tot Ret Cap Gain Div.
2014 5 0.00% -45.07% -45.07% 0.00%
2009 10 0.00% -42.75% -44.19% 1.44%
2004 15 0.00% -6.20% -28.40% 22.19%
1999 20 0.00% 13.49% -17.35% 30.84%
1994 25 0.00% 6.13% -15.42% 21.54%
1992 27 0.00% 8.10% -13.29% 21.39%

The 5 year low, median, and high median Price/Earnings per Share Ratios are negative and therefore useless. The corresponding 10 year ratios are also negative and useless. The corresponding historical ratios are 4.55, 6.54 and 8.49. They are low because of recent earnings losses. The current P/E Ratio is negative and so I cannot do this testing. Also, analysts expect the EPS to be negative in 2021.

I calculate a Graham Price of $0.20, but this is just an estimate. The 10 year low, median, and high median Price/Graham Price Ratios are 0.39, 0.91 and 1.33. The current P/GP Ratio is 0.20 based on a stock price of $0.03. This stock price testing suggests that the stock price is relatively cheap.

I get a 10 year median Price/Book Value per Share Ratio of 0.87. The book value has turned negative so I cannot do this stock price test.

I get a 10 year median Price/Cash Flow per Share Ratio that is negative. So, I cannot do this stock price test. However, the current P/CF Ratio is very low at just 0.06 currently.

The dividends have been cancelled so I can do no stock price testing using dividend yields.

The 10 year median Price/Sales (Revenue) Ratio is 0.17. The current P/S Ratio is 0.01 based on last 12 months revenue of $122.5M, Revenue per Share of $4.05 and a stock price of $0.03. The current ratio is 94% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.

Results of stock price testing is that the stock price is probably relatively cheap. There is only one good test and that is the P/S Ratio test, although the P/GP Ratio test is probably acceptable.

Is it a good company at a reasonable price? The stock price is relatively cheap. However, being cheap does not make a stock a good buy. Who knows if this firms will recover? The management has hope, but talk about the impact of the lockdown. They have a 60 year history and a 5 year strategic plan. They also have a negative book value, which means there is no meaningful breakup value.

When I look at analysts’ recommendations, I find only one recommendation and it is a Sell (1). The consensus would be a Sell.

Analysts on this site of Stock Chase where saying do not buy in 2011, the last year of any posting. The last report mentioning this stock on Motley Fool was in 2017 and it said Reitman’s were doing better. The Executive Summary on Simply Wall Street says the company is trading at 100% below its estimated fair value, but it lists a number of risk factors. A recent report on Simply Wall Street looks at who owns shares in this company. A report about this company’s second quarter of 2020 is posted on Yahoo Finance.

Le Chateau Inc is a Canadian brand in specialty retailing, offering a broad array of contemporary fashion apparel, accessories, and footwear for style-conscious women and men. The firm offers tops, sweaters, cardigans, pants, skirts, shirts, ties and blazers, among others for women and men. Its web site is here Le Chateau Inc.

The last stock I wrote about was about was Granite REIT (TSX-GRT.UN, NYSE-GRP.U) ... learn more. The next stock I will write about will be K-Bro Linen Inc (TSX-KBL, OTC-KBRLF) ... learn more on Wednesday, September 30, 2020 around 5 pm. Tomorrow on my other blog I will write about Losing Investments.... learn more on Tuesday, September 29, 2020 around 5 pm.

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. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.

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