Spotlight: Reitmans (Canada) Limited
moneyrelations :: Aug.10.2007
In a previous post, I had mentioned that Reitmans (TSE: RET.A) was a company that was on my watchlist. It operates under seven banners: Reitmans, Smart Set, RW&Co, Cassis, Thyme Maternity, Additional Elle, and Penningtons. It has every market of women’s apparel covered: junior ladies, youthful baby boomer, maternity wear and plus-sized clothing.
My personal favorite is RW&Co. The clothes are urban but appropriate enough for the office. As for Reitmans itself, I might go there once in awhile. And everyone goes to Smart Set. I don’t care about their target age demographics; I know 50 year-olds going there to pick up tops for their summer vacation. In fact, that’s how I took notice of Reitmans. I saw a Smart Set opening at my local shopping mall and looked them up. Little did I know…
So, from personal experience, 3/7 stores take my money and I’m intrigued. But do I just like the idea of the company and their niche markets or is there really something to this? For the first time, I’m doing some homework.
I downloaded Reitmans’ financial reports and just plugged the numbers into valuation calculators.
| 2006 | 2005 | 2004 | 2003 | 2002 | 2001 | 2000 | |
| Earnings per Share | 1.17 | 1.22 | 0.97 | 0.58 | 0.36 | 0.40 | 0.29 |
| Earnings Growth % | -4.10 | 25.77 | 66.52 | 62.94 | -10.63 | 36.17 | -62.70 |
| Return on Equity | 19.96 | 23.52 | 22.01 | 15.40 | 10.46 | 12.58 | 10.19 |
Moneychimp.com has great resources for stock valuation and everything is in plain English. I encourage new investors to read up. Using a trailing twelve months EPS of 1.12 and a 20% growth estimate for 5 years, I played with the discounted cash flow calculator as seen below.
Frankly, I don’t know if anyone can predict the return rate of the TSX over the next few years so I prefer using the “Buffett Formula” calculator where I have a margin of safety of 40% and judge it against a 5% guaranteed return.
So there you have my approximate target price for Reitmans. I say approximate because this is just one of many valuation calculators available online. It’s still up to you to decide what type of valuation strategies you’re comfortable with. It’s a starting point.
I still have to go through their annual reports to read their forward looking statements from year to year to validate their accomplishments and review the blips they have had along the way. They have little debt and a decent 2.6% dividend yield. A drawback might be that as a family-controlled company, shareholder rights might be an issue. However, I also see it as a plus as they know the business model as their recent track record would indicate.
I do not own Reitmans but I’d be interested if they came down in price further.
Disclaimer: Chimps are great but do your own math.
Investing ::
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