Is it a good company at a reasonable price? It would seem that most people expect this company to do well over the long term and the current situation is just a temporary setback. They could very well be right. However, investing in this company could also be risky and it is best not to invest money in it that you cannot afford to lose. The dividend testing is pointing to a current cheap stock price. It could be correct if their problems are rather short term. However, it is never possible to know ahead of time how markets will turn out.
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.
When I was updating my spreadsheet, I noticed that Revenue is down 13% so far this year (second quarter). Revenue is expected to be down by 24% this year. According to a recent TD Cowen report, the problem is declining retail demand. With lower revenue came also lower earnings and cash flow. This company has a fiscal year end of January 31 each year, so I am reviewing January 31, 2024.
In the chart below, I am showing 5 and 10 year total growth and per year growth in columns 3 and 4. Column 5 shows growth expected over 12 months to the second quarter in 2024 and expected growth over this year. You can see from the chart below that most items are expected to decline this year and have declined over the 12 month period to the end of the second quarter.
| Yr | Item | Tot. Gwth | Per Year | Gwth | Coverage |
|---|---|---|---|---|---|
| 5 | Revenue Growth | 97.70% | 14.60% | -12.87% | <-12 mths |
| 5 | AEPS Growth | 258.39% | 29.08% | -36.18% | <-12 mths |
| 5 | Net Income Growth | 227.49% | 26.78% | -66.30% | <-12 mths |
| 5 | Cash Flow Growth | 195.46% | 24.19% | -29.87% | <-12 mths |
| 5 | Dividend Growth | 100.00% | 14.87% | 16.67% | <-12 mths |
| 5 | Stock Price Growth | 124.33% | 17.54% | -1.60% | <-12 mths |
| 10 | Revenue Growth | 224.57% | 12.49% | -23.83% | <-this year |
| 10 | AEPS Growth | 648.63% | 22.30% | -72.64% | <-this year |
| 10 | Net Income Growth | 1145.64% | 28.69% | -85.49% | <-this year |
| 10 | Cash Flow Growth | 671.93% | 22.68% | -60.55% | <-this year |
| 6 | Dividend Growth | 125.00% | 0.00% | 14.03% | <-this year |
| 10 | Stock Price Growth | 202.89% | 11.72% | 11.78% | <-this year |
If you had invested in this company in December 2013, for $1,016.82 you would have bought 42 shares at $24.21 per share. In December 2023, after 10 years you would have received $125.58 in dividends. The stock would be worth $3,982.44. Your total return would have been $4,108.02. This would be a total return of 12.61% per year with 12.14% from capital gain and 0.47% from dividends.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $24.21 | $1,016.82 | 42 | 9 | $125.58 | $3,982.44 | $4,108.02 |
The current dividend yield is low with dividend growth moderate. The current dividend yield is low (below 2%) at 1.02%. The 5 and 6 year median dividend yields are also low at 0.69% and 0.69%. The dividend growth is moderate (8% to 14% ranges) at 14.9% per year over the past 5 years. The last dividend increase was good (15% and above) at 16.7%.
The Dividend Payout Ratios (DPR) are good. The DPR for 2023 for Earnings per Share (EPS) is good at 8% with 5 year coverage at 6%. The DPR for 2023 for Adjusted Earnings per Share (AEPS) is good at 6% with 5 year coverage at 6%. The DPR for 2023 for Cash Flow per Share (CFPS) is good at 3% with 5 year coverage at 3%. The DPR for 2023 for Free Cash Flow (FCF) is good at 10% with 5 year coverage at 9%.
| Item | Cur | 5 Years |
|---|---|---|
| EPS | 7.60% | 6.37% |
| AEPS | 6.48% | 5.90% |
| CFPS | 3.20% | 2.92% |
| FCF | 9.59% | 9.44% |
Debt Ratios show relatively high debt, but Liquidity and Debt Ratios are good. The Long Term Debt/Market Cap Ratio for 2023 is good at 0.38 and currently at 0.46. The Liquidity Ratio for 2023 is fine at 1.41 and 1.32 currently. If you added in Cash Flow after dividends, the ratios are fine at 1.2.03 and currently at 1.56. The Debt Ratio for 2023 is too low at 1.14 and 1.10 currently. The Leverage and Debt/Equity Ratios for 2023 are far too high at 8.32 and 7.32 and currently at 11.51 and 10.51. The leverage and D/E Ratios are high because this company has had negative book values. This is not a good situation. It implies that the breakup value of the company negative.
| Type | Year End | Ratio Curr |
|---|---|---|
| Lg Term R | 0.38 | 0.46 |
| Intang/GW | 0.09 | 0.11 |
| Liquidity | 1.41 | 1.32 |
| Liq. + CF | 2.03 | 1.56 |
| Debt Ratio | 1.14 | 1.10 |
| Leverage | 8.32 | 11.51 |
| D/E Ratio | 7.32 | 10.51 |
The Total Return per year is shown below for years of 5 to 10 to the end of 2023. 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. |
|---|---|---|---|---|---|
| 2018 | 5 | 14.87% | 22.68% | 21.82% | 0.86% |
| 2013 | 10 | 14.47% | 12.61% | 12.14% | 0.47% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are 8.32, 11.46 and 13.49. The corresponding 10 year ratios are 9.21, 13.18 and 18.16. The corresponding 10 year ratios are 9.42, 14.15 and 19.54. The current P/E Ratio is 56.77 based on a stock price of $82.20 and EPS estimate for 2025 of $1.45. This ratio is above the high ratio for the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive.
I also have Adjusted Earnings per Share (AEPS) data. The 5-year low, median, and high median Price/Adjusted Earnings per Share Ratios are 7.09, 10.26 and 12.66. The corresponding 10 year ratios are 8.81, 12.07 and 16.88. The current P/AEPS Ratios is 27.04 based on AEPS estimate for 2024 of $3.04 and a stock price of $82.20. This ratio is above the high ratio of the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive. A problem is that analysts expect AEPS to drop 73%, from $11.11 in 2024 to $3.04 in 2025.
If we look at the AEPS for the last 12 months, which is $7.09 and a drop of 36%. We get a ratio of 11.59 with the stock price of $82.20. This ratio is between the low and median ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable and below the median. Certainly, the AEPS is going to drop in 2025 and how far is a question.
I get a Graham Price of $22.79. The 10-year low, median, and high median Price/Graham Price Ratios are 13.23, 29.98 and 39.59. The current ratio is 3.61 based on a stock price of $82.20. This ratio is below the low ratio of the 10 year median ratio. This stock price testing suggests that the stock price is relatively cheap. Normal Graham Price Ratio is around 1.00. The reason that the ratio here are so high is because the book value has often been very low to negative. Still a ratio of 3.61 is rather high.
I get a 10-year median Price/Book Value per Share Ratio that is negative, so this cannot be used in testing. The current ratio at 10.83 is high where generally a good ratio is around 1.50. There is also a Book Value per Share estimate for 2024 which with a stock price of $82.20 implies a P/B Ratio of 7.16. This is also rather high.
I get a 10-year median Price/Cash Flow per Share Ratio of 7.59. The current P/CF Ratio is 9.17 based on a stock price of $82.20, Cash Flow per Share estimate for 2025 of $8.96 and Cash Flow of $654M. This ratio is 20.9% 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 0.69%. The current ratio is 1.02% based on a stock price of $82.20 and dividends of $0.84. This ratio is 48% above the historical median dividend yield. This stock price testing suggests that the stock price is relatively cheap. Note that this company has not lowered its dividend and analysts do not expect that will happen. Also note that dividends have only been paid for 6 years, so the dividend yield of 0.69% is also the dividend yield for 6 year median dividend yield.
The 10-year median Price/Sales (Revenue) Ratio is 0.77. The current P/S Ratio is 0.76 based on Revenue estimate for 2025 of $7,897M, Revenue per Share of $108.18 and a stock price of $82.20. The current ratio is 1.8% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and below the median. Note that the Revenue in 2025 is expected to drop around 24%.
Results of stock price testing is that the stock price is probably reasonable and maybe cheap. The thinking being that dividend yield is pointing to the stock being cheap. The P/S Ratio testing is pointing to the stock price as being reasonable. I know that the rest of the testing is generally pointing to the stock as being expensive. Revenue, earnings, and cash flow are all falling, but a lot of analysts seem to think that this temporary.
When I look at analysts’ recommendations, I find Strong Buy (6), Buy (4) and Hold (10). The consensus would be a Buy. The 12 month stock price consensus is $94.83 with a high of $105.00 and low of $82.00. The stock price consensus of $94.83 implies a total return of 16.39% with 15.36% from capital gains and 1.02% from dividends based on a stock price of $82.20.
There are mixed reviews on Stock Chase from analysts and the latest one says Wait. It says there is a softening industry demand. Stock Chase gives this stock 4 stars out of 5. Jitendra Parashar on Motley Fool says on September 10 that BRP took a dive of 6.7% that day. Aditya Raghunath on Motley Fool thinks that this stock is positioned to deliver outsized gains in the coming decade. The company put out a press release on Newswire about their fourth quarter ending January 2024. The company put out a press release via Newswire about their second quarter results for 2025.
Here is an article on Insider Monkey via Yahoo Finance about a bull cash for this company. Simply Wall Street via Yahoo Finance re views this company. Simply Wall Street has 3 warnings on this stock of has a high level of debt; large one-off items impacting financial results; and profit margins (2.8%) are lower than last year (9.1%). Simply Wall Street gives this stock 3 and one half stars out of 5.
BRP designs, develops, manufactures, distributes, and markets snowmobiles, all-terrain vehicles, and personal watercraft. It also builds engines under the Rotax brand and offers clothing, parts, and accessories that cater to its core consumers. It has a marine group, acquiring boat manufacturers Alumacraft, Triton and Telwater (in Australia). At the end of fiscal 2024, the company sold its products in about 130 countries. 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 30, 2024 around 5 pm.
This blog is meant for educational purposes only and is not to provide investment advice. I am not a licensed professional investment advisor. 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.
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