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 and 2010.
When I was updating my spreadsheet, I noticed that I am doing better in this stock than I had for a couple of years. My total return to date is 8.59% with 5.69% from capital gains and 2.90% from dividends. In 2020 my total return was 4.64% and 2019 was 5.26%. I bought it at the wrong time as I bought in 2006. In 2008 we had a recession and a very long recovery. This affected this company. However, when I bought, I could not have known that there would be such a recession in 2008.
The dividend yields are moderate with dividend growth low. The current dividend yield is moderate (2% to 4%) range at 2.88%. The 5, 10 and historical median dividend yields are also moderate at 2.95%, 2.82% and 2.17%. The dividend increases have been low with increases at 7% per year over the past 5 years. The last dividend increase was in 2021 and it was for 14.3%. Dividend growth has varied a lot over the years.
The Dividend Payout Ratios (DPR) are fine. The DPR for 2020 for EPS was 28% with 5 year coverage at 36%. Analysts expect the DPR for EPS for 2021 to be 54% then declining to 34% in 2022. The DPR for 2020 for CFPS was 19% with 5 year coverage at 30%. Analysts expect the DPR for CFPS to be around 34% in 2021. The DPR for 2020 for Free Cash Flow was 9.3% with 5 year coverage at 17%. Analysts expect the DPR for FCF for 2021 to be 44%, then falling to 23% in 2021.
Debt Ratios are fine. The Long Term Debt Market Cash is low at 0.06. the Liquidity Ratio for 2020 is 1.20. If you add in Cash Flow after dividends, the ratio becomes 1.77. The Debt Ratio for 2020 is 1.72. The Leverage and Debt/Equity Ratios for 2020 are 2.38 and 1.38.
The Total Return per year is shown below for years of 5 to 32 to the end of 2020. 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.|
The 5 year low, median, and high median Price/Earnings per Share Ratios are 11.01, 12.67 and 14.32. The corresponding 10 year ratios are 13.43, 12.67 and 16.83. The corresponding historical ratios are 12.15, 14.56 and 16.28. The current P/E Ratio is 12.83 based on a stock price of $22.20 and EPS estimate for 2021 of $1.73. The current P/E Ratio is between the median and high median 10 year ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median.
If you look at P/E Ratios compared to Total Returns for the 5, 10, 15, 20, 25, and 30 year periods, I find he following. For example, total return over the past 15 years is 8.90% per year, the starting P/E Ratio (the one from 15 years ago) was 13.87. From the point of view of this chart, a P/E Ratio of 12.83 would be fine. The one year of low total return of 6.04% was for the past 10 years and the start P/E was 17.01.
|Year||Tot Return||Start P/E|
I get a Graham Price of $22.42. The 10 year low, median, and high median Price/Graham Price Ratios are 0.97, 1.10 and 1.24. The current P/GP Ratio is 0.99 based on a stock price of $22.20. The current ratio is below the median ratio of 1.10. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median Price/Book Value per Share Ratio of 1.81. The current P/B Ratio is 1.72 based on a stock price of $22.20, Book Value of $1,016M and Book Value per Share of $12.92. The current ratio is 5% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I get a 10 year median Price/Cash Flow per Share Ratio of $7.98. The current P/CF Ratio is 8.07 based on a stock price of $22.20, Cash Flow per Share estimate for 2021 of $2.75 and Cash Flow of $216M. The current ratio is 1% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median. Since it is only 1% above, it is close to the median.
I get an historical median dividend yield of 2.08%. The current dividend yield is 2.88% based on dividends of $0.64 and a stock price of $22.20. The current dividend yield is 39% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively cheap.
I get a 10 year median dividend yield of 2.82%. The current dividend yield is 2.88% based on dividends of $0.64 and a stock price of $22.20. The current dividend yield is 2% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively reasonable and below the median.
The 10 year median Price/Sales (Revenue) Ratio is 0.57. The current P/S Ratio is 0.73 based on a stock price of $22.20, Revenue estimate for 2021 of $1,388M, and Revenue per Share of $30.36. The current ratio is 29% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
Results of stock price testing is that the stock price is probably reasonable. I know a number of people that like the 10 year median dividend yield test compared to the historical median yield test. Revenue has not grown much since the 2008 recession, especially in the last 5 years. Most tests, except for the P/S Ratio test is showing the stock price as reasonable. However, caution is probably called for as it is a consumer stock and it is a small cap company because its Market Cap is under $2B at $1.7B. However, in Canada, sometimes a Mid-Cap size company is considered to be from $1.5B to $5B.
Is it a good company at a reasonable price? The price is probably reasonable. I still like this company and I expect to continue to hold my shares. I do not expect a total return of more than 8% per year, which is a reasonable amount. It has a reasonable Return on Equity with a 5 year average of 12.8% per year and the debt ratios are fine.
When I look at analysts’ recommendations, I find a Hold (1) Recommendation. The Consensus would be a Hold. The 12 month stock price consensus is $23.00. This implies a total return of $9.04% with 6.16% from capital gains and 2.88% from dividends.
The last analyst’s recommendation in January 2021 on Stock Chase said this stock was their top pick. Aditya Raghunath on Motley Fool called this stock a long-term investment option. The Executive Summary on Simply Wall Street gave this stock 4 stars out of 5 and list 2 risks. A writer on Simply Wall Street feels the company’s debt use is not risky.
Leon's Furniture Ltd is a Canada-based retailer that operates in two main segments, both involved in the sale of home furnishing, mattresses, appliances, and electronics. Leon's segment includes the 86 physical stores nationwide and the leons.ca website. The Brick segment includes The Brick, The Brick Mattress, and the Brick Outlet stores, as well as the website thebrick.com. Its web site is here Leon's Furniture Ltd.
The last stock I wrote about was about was Supremex Inc (TSX-SXP, OTC-SUMXF) ... learn more. The next stock I will write about will be Barrick Gold Corp (TSX-ABX, NYSE-GOLD) ... learn more on Tuesday, April 20, 2021 around 5 pm.
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