Friday, June 12, 2015

Reitmans (Canada) Ltd. 2

Sound bite for Twitter and StockTwits is: Stock is possibly cheap. I think that the stock price is probably cheap. It certainly is not expensive. See my spreadsheet at ret.htm.

I own this stock of Reitmans (Canada) Ltd. (TSX-RET.A, OTC-RTMAF). I was following this stock as it was a stock on Mike Higgs' dividend growth stocks list. I bought this company in September 2013. It was in financial difficulties and so was quite cheap. I believe it will recover.

For insider trading, there is minor insider selling and minor insider buying and none of this add up to much. There are common voting shares (TSX-RET) and Class A non-voting shares (TSX-RET.A). The ones sold on the market are generally the Class A shares, although there is also a market for the common voting shares.

Sherlex Investments Inc. owned by the Reitman family own around 50% of the outstanding common shares. Insiders also own common shares as well as Class A shares. It would seem that the CEO and a director, both of the Reitman family own or controls some 16.6% of the outstanding common shares. This numbers of shares are worth around $18M. Also noteworthy is the fact that Fairfax Financial Holdings Limited has bought 12.7% of the company's Class A shares worth around $50M.

The 5 year low, median and high median Price/Earnings per Share Ratios are 26.24, 32.88 and 38.59. These are very high ratios and much higher than the 10 year values of 11.94, 13.68 and 16.60. The historical high and low P/E medians are close to the 10 year values at 10.56 and 16.61. Probably why the recent P/E Ratios are high is because of the big drop recently in EPS.

The current P/E Ratio is 17.42 based on a stock price of $6.27 and 2016 EPS estimate of $0.36. The 2016 EPS estimate is some 71% higher than the 2015 EPS, but the first quarter of 2016 was much better than the first quarter of 2015. If you look at EPS for the 12 months ending in January 2015 and the 12 month period ending in May 2016, EPS is up by 30%. So the EPS estimate looks reasonable. A P/E Ratio of 17.42 is a little high for this stock and this stock price test would suggest that the stock price is expensive, but not excessively so.

I get a Graham Price of $7.11. The 10 year low, median and high median Price/Graham Price Ratios are 1.05, 1.31 and 1.55. The current P/GP Ratio is 0.88. This stock price test suggests that the stock price is relatively cheap. Also, on an absolute basis a P/GP Ratio less than 1.00 says that a stock price is cheap.

The 10 year Price/Book Value per Share Ratio is 2.03 and the current P/B Ratio at 1.00 is some 50% lower. The current P/B Ratio is based on a BVPS of $6.24 and a stock price of $6.27. This stock price test suggests that the stock price is relatively cheap.

The 5 year median dividend yield is 5% and the current dividend yield at 3.19% is some 36% higher. This would suggest that the stock price is relatively expensive. However, prior to the dividend cut the yields on this stock got quite high. The historical dividend yield is 3.1% and the current dividend yield of 3.19% is just 3% higher. This stock price test suggests that the stock price is relatively reasonable.

The 10 year Price/Cash Flow per Share Ratio is 9.04 and the current P/CF Ratio is 7.46 based on a stock price of $6.27 and 2016 CFPS estimate of $1.09. The current P/CF Ratio is some 17% lower than the 10 year P/CFPS Ratio. The CFPS estimate is some 16% lower than the CFPS for 2015. If you look at CFPS for the 12 months ending in January 2015 and the 12 month period ending in May 2016, CFPS is up by 12.9%. The CFPS is going in the opposite direction of the estimates. In any event, this stock price test suggests that the stock price is relatively reasonable or possibly the price is cheap.

When I look at analysts' recommendations, I find only two and both are a Hold. The consensus recommendation would be a Hold. The 12 month consensus stock price is $7.25. This implies a 18.82% total return with 15.63% from capital gains and 3.19% from dividends.

Judy McKinnon of The Wall Street Journal on the Canada Real Time site said that Reitmans was a stock to watch in June 2015. A recent article by Hollie Shaw in the Financial Post gave a positive spin to this stock. Jamie Sturgeon in an article at Global News was quite negative about Reitmans.

This is the second of two parts. The first part was posted on Thursday, June 11, 2015 and is available here. The first part talks about the stock and the second part talks about the stock price.

Reitmans (Canada) Limited operates a network of clothing stores specializing in women's & men's fashions and accessories. The company operates stores under the names Reitmans, Smart Set, Pennington, RW & Co., Thyme Maternity and Addition-Elle. Its web site is here Reitmans.

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. Follow me on Twitter or StockTwits.

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