I do not own this stock of BRP Inc (TSX-DOO, OTC-DOOO). Robin Speziale, author of Market Masters and Capital Compounders had mentioned this stock in Capital Compounders, Table 3 (page 93 in my copy) as a possible next Capital Compounder. Inter Pipeline Ltd (TSX-IPL, OTC-IPPLF) is being bought out, so I decided to replace it with BRP Inc. The financial year ends at January 31 each year, so the year I am reviewing is for January 31, 2021. This stock went public May 2013.
When I was updating my spreadsheet, I noticed that they have a negative book value. They mostly have had negative book values since their initial public offering in 2013. The larges liabilities are Trade Payables and Long Term Debt. Trade Payables involve receiving goods and services which have not been paid for. I do not like to see negative book values, but this does not seem to bother analysts. They see a great future for this company, including a quick rise in EPS.
The dividend yields are low with dividend growth good. The current dividend yield is low (under 2%) at just 0.43%. The dividend growth is good (15% and above) for the past 3 years at 23.6% per year. The last dividend increase was in 2022 for 18%. Dividends were suspended for a period in 2021.
The Dividend Payout Ratios (DPR) are good. The DPR for 2021 is 2.7% with 3 year coverage at 7.3%. The DPR for Cash Flow per Share for 2021 is 1.1% with 3 year coverage at 3.2%. The DPR for Free Cash Flow for 2021 is 1.4% with 3 year coverage at 4%. Dividends were started in 2019.
Debt Ratios need improvement. The Long Term Debt/Market Cap Ratio for 2021 is 0.33 which is good. The Liquidity Ratio is low at 1.31, but is much better at 1.73 when you add in cash flow after dividends. The Debt Ratio is 0.91. This means that the assets cannot cover the liabilities and there is a balance sheet deficit. The Leverage and Debt/Equity Ratios cannot be calculated with a negative book value. Analysts do not seem worried about the negative book value.
The Total Return per year is shown below for years of 5 to 7 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 8.99, 13.49 and 19.54. The corresponding 8 year and historical ratios are 12.33, 22.81 and 26.60. The current P/E Ratio is 13.31 based on a stock price of $123.08 and EPS estimate for 2022 of 9.25. The current ratio is between the low and median ratios of the 8 year median ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median.
I cannot calculate the Graham Price because the Book Value is negative. I cannot do any P/B Ratio testing because the Book Value is negative.
I get an 8 year median Price/Cash Flow per Share Ratio of 7.85. The current P/CF Ratio is 9.25 based on Cash Flow per Share estimate for 2022 of $13.30, Cash Flow of $1,151M and a stock price $123.08. The current P/CF Ratio is 18% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get an 8 year and historical median dividend yield of 0.67%. The current dividend yield is 0.42% based on dividends of $0.52 and a stock price of $123.08. The current yield is 37% below the 8 and historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
The 10 year median Price/Sales (Revenue) Ratio is 0.83. The current P/S Ratio is 1.36 based on Revenue estimate for 2022 of $7,823M, Revenue per Share of $90.39 and a stock price of $123.08. The current P/S Ratio is 64% 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 I probably expensive. The dividend yield test is saying the stock price is expensive, and this is confirmed by the P/S Ratio test. The P/E Ratio test and the P/CF Ratio test is showing the stock price as reasonable but above the median. I cannot do a P/GP Ratio test nor a P/B Ratio test because of the negative Book Value.
Is it a good company at a reasonable price? I do not think that the current stock price is reasonable. Considering the risks of this stock you have to wonder if buying it for a 13% total return is worth it.
When I look at analysts’ recommendations, I find Strong Buy (8), Buy (6) and Hold (1). The Consensus is a Strong Buy. The 12 months stock price is $138.85. This implies a total return of 13.24% with 12.81% from capital gains and 0.42% from dividends.
Recently 5i Research on Stock Chase says to buy on weakness. Chris MacDonald on Motley Fool says this cyclical stock appears to be well positioned to ride the momentum forward. The executive summary on Simply Wall Street gives this stock 3 stars out of 5 and list 3 risks. They do mention the negative book value. A writer on Simply Wall Street talks about insider buying by an independent director. A writer on Simply Wall Street says the CEO is paid less than similarly capitalized companies. However, he also says that the company has no earnings, but that is untrue.
BRP Inc designs, develops, manufactures, distributes, and markets snowmobiles, all-terrain vehicles, and personal watercraft under the Ski-Doo, Sea-Doo, Can-Am, and Lynx brand names. It also builds engines under the Rotax brand and offers parts, accessories, and clothing that cater to its core consumers. In 2018, BRP acquired boat manufacturers Alumacraft, Triton and Telwater (in Australia). Its web site is here BRP Inc.
The last stock I wrote about was about was K-Bro Linen Inc (TSX-KBL, OTC-KBRLF) ... learn more. The next stock I will write about will be Linamar Corporation (TSX-LNR, OTC-LIMAF) ... learn more on Monday, September 27, 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.
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