samedi 8 avril 2017

Richelieu Hardware (RCH.TO)

People are constantly interested by what's new, what's promising, what's exciting. That was the game of Jason Donville and that's the game of many other analysts.

Strangely, these analysts almost never look at older companies in more traditional sectors. Why? Because these stocks are not special enough to make these analysts look like prophets to their eventual clients? Or these stocks are too big or mature for them to get an interesting reward the day after they go on TV? I don't know. There must be a fucking reason.

But they all should be looking for something like Richelieu Hardware: A boring company producing various hardware stuff like knobs, pulls, hooks and lots of other hardware stuff. Boring stuff, out of the spotlight, just like Mohawk, producing carpets. Just like Stella Jones producing railway ties and utility poles.

Plus, nobody ever talks about that company. Nobody gives a shit about Richelieu. So, there's surely not a hype with that stock (with hype comes crazy valuation).

OK, now, let's take a look at some numbers:

Beta: 0,53 (low) 

Stock performance last 5 years: 164%
Stock performance last 10 years: 254%

Average ROE last 5 years: 17
Actual ROE: 17

PE high last 5 years: 25
PE low last 5 years: 17
Actual PE: 27

Debt level: very low (almost no debt)
Dilution or buyback: about 5% buyback over the last 5 years

EPS 2012: 0,72$
EPS 2013: 0,74$
EPS 2014: 0,88$
EPS 2015: 0,99$
EPS 2016: 1,07$

If you would have bought the stock in april 1997, you would have paid about 0,73$ for one share. Twenty years later, that same share is priced at 29$. That's about 40 times your money. Growth wasn't spectacular, but it was steady. You would have become much richer with Google or Amazon, but you would have asked yourself much more existential questions over these 20 years with that kind of stock.

At 27 times actual earnings, Richelieu Hardware is expensive. But growth is steady, there's almost no debt and the cash position is important. An acquisition is highly probable, and that acquisition will reduce the PE.

If that stock was avalaible at 20 times earnings, I'd probably buy it. At the moment, it's too expensive for me, but I repeat, that's EXACTLY the kind of business you need to put in your portfolio.

3 commentaires:

  1. I've noticed that myself. Stocks in hum drum industries often make solid long term investments. I owned Toromont (TIH) for years and made a ton of money on it. They were had two business of specialized mobile equipment and industrial engines and the design, engineering, fabrication and installation of industrial and recreational refrigeration systems.

    Unfortunately I sold them on a whim thinking they were overbought (I had planned to buy them back) but it got away from me. The stock has gone up 60% since I sold it with increasing dividends to boot. A hard but instructive lesson for me.

    1. "Never sell a good asset".

      Much easier said than done.