Is it a good company at a reasonable price? This is a small cap I bought with my fooling around money. I am pleased with its recent progress. Until this year, I was not making much on this stock. For example, my total return to the April 2021 was 6.77% per year, for April 2022 was 7.86% per year, but for April 2023 is 19.14% per year. The stock price went up in 2007, and then was basically flat until 2001. My relative stock price testing is showing the stock price as expensive, but with very low ratio rates in the past, you could argue that the currently price relatively to other stocks might be reasonable.
Can I make an argument that the stock price might be reasonable? The thing is that a lot of the ratios on this stock are very low. Another is that my method of relative pricing sometimes does not always tell the whole story. No method is perfect. So, perhaps I can make an argument that the stock price is reasonable.
First with the P/E Ratio test. The P/E Ratios for this stock are very low. The current one of 10.25 is a low one and points to a reasonable stock price. For the P/GP Ratio, the current one of 1.10 is not a high one. In theory a ratio of 1.00 or less is considered good. The P/CF ratio of 18.69 is a bit high, but not that high. Anything over 20.00 would probably be considered high, making the stock price expensive. The P/S Ratio of 0.75 is low. Basically, a ratio of 1.00 or less is a good one.
I own this stock of Hammond Power Solutions Inc (TSX-HPS.A, OTC-HMDPF). When I was updating my spreadsheet, I noticed last year, my Total Return to the end of April 2022 was 7.86%, with 5.13% from capital gains and 2.73% from dividends. This year my Total Return to the end of April 2023 was 19.14% with 17.26% from capital gains and 1.88% from dividends.
If you had invested in this company in December 2012, for $1,007.37 you would have bought 123 shares at $8.19 per share. In December 2022, after 10 years you would have received $349.94 in dividends. The stock would be worth $2,474.76. Your total return would have been $2,824.70.
|Cost||Tot. Cost||Shares||Years||Dividends||Stock Val||Tot Ret|
Looking at the chart below of growth over the past 5 and 10 years, growth has picked up. The company has good growth in earnings and cash flow, especially over the past 5 years. EPS has especially grown over the past 2 years while cash flow growth has happened over the past 5 years.
|Year||Item||Tot. Growth||Per Year|
|5||Net Income Growth||629.62%||48.81%|
|5||Cash Flow Growth||3486.53%||104.61%|
|5||Stock Price Growth||119.65%||17.04%|
|10||Net Income Growth||255.19%||13.51%|
|10||Cash Flow Growth||73.19%||5.65%|
|10||Stock Price Growth||145.67%||9.40%|
The current dividend yield is low with dividend growth moderate. The current dividend yield is low (below 2%) at 1.18%. The 5, 10 and historical dividend yields are moderate (2% to 4% ranges) at 3.29%, 3.46% and 3.02%. The dividends are currently low because of the recent steep climb in the stock price. Dividends have grown at a moderate rate (8% to 14% ranges) at 9.9% per year over the past 5 years. I have 13 years of dividend information and of those years, dividends were increase in 8 years (or 62% of the time).
The Dividend Payout Ratios (DPR) are good. The DPR for Earnings per Share (EPS) for 2022 is 10% with 5 year coverage at 26%. The DPR for Cash Flow per Share (CFPS) for 2022 is 6% with 5 years at 10%. The DPR for Free Cash Flow (FCF) for 2022 is 14% with 5 year coverage at 24%.
Debt Ratios are good. The Long Term Debt/Market Cap Ratio for 2022 is low and good at 0.03. The Liquidity Ratio is high and good at 1.96. The Debt Ratio is high and good at 2.41. The Leverage and Debt/Equity Ratios are low and good at 1.71 and 0.71.
|Liq. + CF||2.23|
The Total Return per year is shown below for years of 5 to 21 to the end of 2022. 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.|
This stock is up 111% year to date. So, if we take this chart year to date, we find the following.
|From||Years||Div. Gth||Tot Ret||Cap Gain||Div.|
The 5-year low, median, and high median Price/Earnings per Share Ratios are 3.65, 5.35 and 7.06. The corresponding 10 year ratios are 8.13, 9.98 and 11.84. The corresponding historical ratios are 6.13, 7.83 and 9.49. The current P/E Ratio is 10.25 based on a stock price of $42.53 and EPS estimate for 2023 of $4.15. The current ratio is between the median and high ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median.
I get a Graham Price of $38.77. The 10-year low, median, and high median Price/Graham Price Ratios are 0.47, 0.62 and 0.78. The current P/GP Ratio is 1.10 based on a stock price of $42.53. The current ratio is above the high ratio of the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive. The P/GP Ratios are quite low and a ratio of 1.10 is generally considered at a good level.
I get a 10-year median Price/Book Value per Share Ratio of 0.81. The current P/B Ratio is 2.64 based on a stock price of $42.53, Book Value of $192M and a Book Value per Share of $16.09. The current ratio is 226% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive. The 10 year median ratio is quite low, but the current one is quite high.
I get a 10-year median Price/Cash Flow per Share Ratio of 5.17. The current P/CF Ratio is 18.69 based on Cash Flow for the last 12 months of $27.08, Cash Flow per Share of 2.28 and a stock price of $42.53. The current ratio is 262% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I get an historical median dividend yield of 3.02%. The current dividend yield is 1.18% based on a stock price of $42.53 and dividends of $0.50. The current dividend yield is 61% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median dividend yield of 3.25%. The current dividend yield is 1.18% based on a stock price of $42.53 and dividends of $0.50. The current dividend yield is 64% above the 10 year median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
The 10-year median Price/Sales (Revenue) Ratio is 0.30. The current P/S Ratio is 0.75 based on Revenue estimate for 2023 of $676M, Revenue per Share of $56.78 and a stock price of $42.53. The current ratio is 147% 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 relatively expensive. The Dividend Yield tests say this as does the P/S Ratio test. Most of the testing, except for the P/E Ratio test, is showing the stock price as expensive. This could not wholly be unexpected as the stock price has gone up year to date by 111%. However, see above paragraph on why the stock price might still be reasonable.
When I look at analysts’ recommendations, I find Strong Buy (3). The consensus would be a strong buy. The 12 months stock price consensus is $62.67. This implies a total return of 48.53% with 47.35% from capital gains and 1.18% from dividends based on a current stock price of $42.53. On TD WebBroker I found 2 Buys and target 12 month stock price of $77.21. This stock price implies a total return of 82.62% with 81.45% from capital gains and 1.18% from dividends based on a current stock price of $42.53.
Analysts on Stock Chase have lost interest in this stock as the last entries are in 2019. Stock Chase gives this stock 1 star out of 5. Aditya Raghunath on Motley Fool thinks that now is a great time to buy this stock. This is not well followed on Motley Fool Karen Thomas in 2013 on Motley Fool thought his company was a hidden gem. The company put out a press release on Newswire about their fourth quarter of 2022 results. The company put out a press release on Newswire about their first quarter of 2023.
Simply Wall Street via Yahoo Finance reviewed this stock in August 2022. Simply Wall Street gives this company 4 stars out of 5. It gives one warnings of high level of non-cash earnings.
Hammond Power Solutions Inc is engaged in designing and manufacturing of custom electrical magnetics, cast resin, custom liquid filled distribution and power transformers and standard electrical transformers, serving the electrical and electronic industries. The company has manufacturing plants in Canada, the United States, Mexico, and India. The company operates in various geographical markets including Canada, the United States, Mexico, and India in which it derives majority revenue in the United States and Mexico. Its web site is here Hammond Power Solutions Inc.
The last stock I wrote about was about was Ag Growth International (TSX-AFN, OTC-AGGZF) ... learn more. The next stock I will write about will be Mullen Group Ltd (TSX-MTL, OTC-MLLGF) ... learn more on Monday, May 22, 2023 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 site for an index to these blog entries and for stocks followed. 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. I am on Instagram. Or you can just Google #walktoronto spbrunner8166 to see my pictures.