mardi 14 juillet 2015

Home Capital is sinking... and I don't wanna swim

Have you seen the incredible drop of Home Capital since yesterday? It's been pretty spectacular: about 23% down since monday morning.

Why? The company has announced that the earnings would be flat since last quarter and would be a little down since same quarter a year ago. About 2% down which is not too scary. The sales are a little more scary because, even if earnings look flat, the sales are down a lot.

The growth at Home Capital seems to have stopped. When will it resumes? Surely not at short term. It worries the market and it worries me a bit, but it's still a great company and the metrics are good.

What do we have now? A company for which:

Average ROE last 5 years: 25
Actual PE ratio: 7,6
Bottom PE ratio last 5 years: 9
Actual Dividend: 2,7%
Price to book value: 1,6 times (which is very low for such a great business)

It looks a bit like IBM: High ratio PE/ROE, high dividend (on a relative point of view), very well managed business that has a long history of rewarding shareholders. And I don't see how it could get much lower from here. Few large companies have such a low PE ratio.

It may be the time for the company to buy back massive amount of stocks or to be bought.

Should you buy? I don't know (I never really know). For the short term, forget it. For the long term, it may be an excellent moment to get some shares and a nice dividend which may grow along the way (your 2,7% dividend may easily become a 4% dividend in about 5 years).

The company still aims at about a 10% earning growth each year which is a nice growth for such a low price.

Check it out. 

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