Friday, May 28, 2021

Reitmans (Canada) Ltd

Sound bite for Twitter and StockTwits is: Consumer Stock. Stock price is probably cheap. It has a lot of debt but 72% of the debt is subject to comprise by CCAA proceedings. Any past positive return is in dividends. It pays to buy stocks that pay dividends. See chart below. See my spreadsheet on Reitmans (Canada) Ltd.

I do not own this stock of Reitmans (Canada) Ltd (TSX-RET.A, OTC-RTMAF). I bought this company in September 2013. It was in financial difficulties and so was quite cheap. I believed it would recover, but I am beginning to wonder now.

When I was updating my spreadsheet, I think the shock is that this company is still hanging in there. They were in trouble before the pandemic. They seem to believe that they will survive this and survive in the end as a company. I guess we will just have to wait and see how this all works out.

They have cancelled their dividend as of 2020. The dividend could not be covered by earnings, but they were covered by cash flow.

Debt Ratios need improvement. Their Long Term Debt/Market Cap for 2020 is good at 0.35. Their Liquidity Ratio until this year had always been good. The Liquidity Ratio for 2020 is low at 0.76. Even if you add in cash flow, the ratio only gets to 0.90. When this ratio is under 1.00 it means that the current assets cannot cover the current liabilities. The Debt Ratio is low at 1.06. It also has been fine in the past. I like to see both the Liquidity Ratio and the Debt Ratio at 1.50 or higher.

However, nearly 72% of the debt of this company is subject to compromise in connection with Companies' Creditors Arrangement Act (CCAA) proceedings. So, the debt may not be as bad as current ratios show.

The Total Return per year is shown below for years of 5 to 33 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.
2015 5 0.00% -33.60% -43.23% 9.63%
2010 10 0.00% -26.43% -35.30% 8.86%
2005 15 0.00% -11.82% -24.76% 12.94%
2000 20 0.00% 17.33% -9.85% 27.18%
1995 25 0.00% 11.67% -7.96% 19.63%
1990 30 0.00% 10.18% -6.19% 16.37%
1987 33 0.00% 7.54% -6.35% 13.89%

The 5 year low, median, and high median Price/Earnings per Share Ratios are all negative and therefore unusable. The corresponding 10 year ratios are 20.94, 27.06 and 32.03. The corresponding historical ratios are 9.77, 12.97 and 15.32. The current P/E Ratio is negative and so unusable.

I estimate a Graham Price of $0.32. The 10 year low, median, and high median Price/Graham Price Ratios are 0.95, 1.14 and 1.48. The current P/GP Ratio is 1.27 based on a stock price of $0.40. This current 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.

I get a 10 year median Price/Book Value per Share Ratio of 1.01. The current P/B Ratio is 0.90 based on a Book Value of 319M, Book Value per share of $21.69 and a stock price of $0.40. The current ratio is 11% 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 7.55. The current P/CF Ratio is 0.49 based on last 12 months Cash Flow of $40.2M, Cash Flow per Share of $ 0.82 and a stock price of $0.40. The current ratio is 94% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap.

I cannot do an historical or 10 year median dividend yield test because dividends have been suspended.

The 10 year median Price/Sales (Revenue) Ratio is 0.33. The current P/S Ratio is 0.04 based on last 12 month Revenue of $533M, Revenue per Share of $10.91 and a stock price of $0.40. The current ratio is 89% 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 cheap. Some tests, especially the P/S Ratio, a favourite test, is showing this. Other are showing the stock price is reasonable.

Is it a good company at a reasonable price? The stock price is probably cheap. However, that does not matter if the company ends up bankrupt. There is a very high risk to this. Even if the company survives, it might take it years to recover to any decent profit level.

When I look at analysts’ recommendations, I find a Hold Rating (1). The consensus would be a Hold. The 12 month stock price is $5.00. This implies a total return of 1150%. I find a 12 month price of $5.00 hard to believe.

The last entry on Stock Chase is 2019. Analysts have lost interest in this stock. Nelson Smith of Motley Fool last year talked about this company going into bankruptcy and wanting to emerge strong with a focus on e-commerce. The executive summary on Simply Wall Street gives this stock 3 stars out of 5 and list 3 risks.

Reitmans (Canada) Ltd is an apparel retailer based in Canada. Its main business is the sale of ladies' specialty apparel to consumers through its retail banners such as including Reitmans, which is a women's apparel specialty chain and fashion brand, Penningtons, RW & CO., which offers fashions for both men and women, Addition Elle, Thyme Maternity, which offers a complete line of nursing fashions and accessories and Hyba. Its web site is here Reitmans (Canada) Ltd.

The last stock I wrote about was about was HLS Therapeutics Inc (TSX-HLS, OTC-HLTRF) ... learn more. The next stock I will write about will be Ritchie Bros Auctioneers Inc (TSX-RBA, NYSE-RBA) ... learn more on Monday, May 31, 2021 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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