I Feel Bullish on this Canadian Company
In this article, let's take a look at Potash Corp. of Saskatchewan, Inc. (POT), a $30.39 billion market cap company, which is the world's largest diversified fertilizer company by capacity, and is one of the world's largest potash producers.
Revenues and Net Income
Looking at profitability, revenues grew by 7.96% and led earnings per share decreased in the most recent quarter compared to the same quarter a year ago ($0.38 vs $0.41). However, the net income has decreased by 10.9% when compared to the same quarter one year ago, from $356.00 million to $317.00 million.
Margins
The gross profit margin is considered relatively low, at 42.5%. It has increased from the same quarter the previous year. However, the net profit margin of 20.09% is ranked higher than 96% of the 184 Companies in the Agricultural Inputs industry.
Profitability
Let�s compare the best measure of performance for a firm's management: the return on equity. The ROE is useful for comparing the profitability of a company to that of other firms in the same industry.
Ticker | Company | ROE (%) |
POT | PotashCorp | 14.71 |
MOS | Mosaic Co. | 8.51 |
BASFY | BASF SE | 18.00 |
Industry Median | 7.49 |
The company has a current ROE of 14.71% which is higher than the one exhibit by Mosaic (MOS). In general, analysts consider ROE ratios in the 15-20% range as representing attractive levels for investment. So for investors looking at those levels, BASF SE (BASFY) could be the option. It is very important to understand this metric before investing and it is important to look at the trend in ROE over time.
Relative Valuation
In terms of valuation, the stock sells at a trailing P/E of 23.4x, trading at a discount compared to an average of 23.5x for the industry. To use another metric, its price-to-book ratio of 3.48x indicates a premium versus the industry average of 1.96x while the price-to-sales ratio of 4.74x is above the industry average of 1.62x.
Price Performance
The stock price has risen over the past year. As we can see in the next chart, the stock price has a positive trend in the five-year period.
Dividends Growth
Potash Corp. has an attractive dividend policy showing its commitment to return cash to investors in the form of dividends as it generates healthy cash flow on a regular basis. The current dividend yield is 3.82% and we think it will continue with the consistency of track-record dividends payments. Dividends have been paid since 1990.
Final Comment
The potash industry is an oligopoly with three big Saskatchewan producers (accounting for almost a third of total world production). We continue believe that potash prices could reach high levels if demand accelerates in countries such as China and India. We believe this firm is better positioned than most peers to meet this increase in demand. In the next article, due to its high dividend yield we are going to calculate its intrinsic value.
Hedge fund gurus like Steven Cohen (Trades, Portfolio), Jim Simons (Trades, Portfolio), Jean-Marie Eveillard (Trades, Portfolio) and Murray Stahl (Trades, Portfolio) added this stock to their portfolios in the third quarter of 2014, as well as Manning & Napier Advisor, Inc.
Disclosure: Omar Venerio holds no position in any stocks mentioned
This article first appeared on GuruFocus.
