Shoppers Drug Mart

I am talking about this stock (TSX-SC) again as I got in annual statements since last review. I have also updated by spreadsheet for the first quarterly report of 2011. I had bought this for my TFSA account. I had tracked this stock for a number of years, but had not bought it until I opened my TFSA account. Unfortunately, it has not done well since Ontario Government changed the rules on generic drugs.

I bought this stock in 2009 and again in 2010 and 2011. I have made a negative 1.2% return on my stock in this company. I recently sold 100 shares to buy into Calian Tech (TSX-CTY), mainly because I liked an investment in Calian better than the current investment in SC. See my blog entries on Calian Tech of May 2011, by clicking here or here.

As far as most growth figures go, this had done quite well. Growth in Revenue is ok, but growth in earnings, cash flow, and book value is good. The 5 and 10 year growth in revenue is 7.3% and 10.4% per year, respectively. The 5 and 10 year growth in cash flow is 10.7% and 11.5% per year, respectively.

The place where growth is not so great is total return. The 5 and 10 year growth in total return is 0% and 10.9% per year, respectively. The portion of this total return that is attributable to dividends is 1.7% and 2.7% per year, respectively. Dividend increases after 2009 was not anywhere near as high as before 2009. However, the last dividend increase was 11% and this stock has a 5 year growth in dividend at 17.4%. Dividends only started in 2005, so there is no statistics for dividend growth beyond 5 years.

The thing that has happened is that the Price/Earnings Ratios on this stock have come down a lot from earlier P/E Ratios. For example, the 5 year median P/E ratio from 2003 to 2008 was 27. However, the current 5 year median P/E ratio is 22and the median P/E ratio for the last couple of year is 17.

P/E Ratios changes can make a lot of difference in capital gains under a stock. The main reason that this stock has preformed poorly over the last 5 years is because P/E ratios have moved lower. Investors in this stock are just not willing to give this stock a P/E ratio of a growth company. Basically, P/E ratios show what investors are willing to pay for x dollars of earnings. That is, if the P/E ratio is 20, investors are willing to pay $20 for each $1 of annual earnings.

Debt ratios on this stock are good. For example, the Liquidity Ratio is currently at 1.62 and the Debt/Equity ratio is 0.66. For the first ratio, higher is better and for the second, lower is better. Return on Equity is also good, with a 5 year median ROE of 15.5.

For Insider Trading, there is a minimal amount of Insider buying and no Insider selling. Management has shown faith in the future by the recent 11% increase in Dividends. There are 165 institutions that own about 47% of this company. There have been buys and sells over the last 3 months, but there is a net increase of 6 buyers and a net increase of just over 4.7M shares.

When I look at analysts recommendations, I find Strong Buy, Buy and Hold recommendations. There are a lot of Hold recommendations, but the consensus recommendation would be a Buy. There are quite a number of analysts following this stock. (See my site for information on analyst ratings.)

Analysts remark on the current slower growth of this company at this time and into the near future. The lower P/E ratios, noted above, points to investors feeling this way also. They also remark on the fact that this company is looking for a new CEO. Some analysts feel that nothing will happen with this stock until a new CEO is appointed.

I will retain the current stock I hold on this company. At present, I will not be purchasing any more. This stock is a very small portion of my portfolio. At some point, I will either buy more to increase its portion in my portfolio, or sell off what I have. I see no point is holding small amounts of stocks for the long term. It remains to be seen whether or not this will be a good investment for me.

Dividend Ninja talked about this stock under Bad News Investing in October 2010.

Shoppers Drug Mart Corp. is a licensor of Shoppers Drug Mart in Canada and Pharmaprix in Quebec. The company owns and operates Shoppers Home Health Care stores. It also owns MediSystem Technologies Inc. and the new Murale Stores. This is a widely held company. Its web site is here Shoppers. See my spreadsheet at sc.htm.

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. See my website for stocks followed and investment notes. Follow me on twitter.