Friday, March 20, 2015

Would I Buy Neratel?


I know Neratel is a long time darling stock of dividend investors. And for good reason too. Not only does it pay a pretty high dividend, it has been appreciating in capital value as well. All the hallmarks of a happy ending to an investment.

Neratel is at 52 week lows, with it's yesterday's closing price at $0.675. Oh how the mighty has fallen from a high of $0.815. That's a 18% fall from it's peak. 2% away from going into a bear market, haha.

Now, with prices cheaper compared to before, is Neratel a good buy?

P/NAV is not useful since this a service company, so meh. My favourite metric gone. D/E ratio is 1.3 which I am not very fond of, however payables do make up 62% or 85% of debt, depending if you want to count non-trade payables. Cash seems at a healthy level, not too much, not too little.

Gross margins seems good at 33% and net margins come in at 9%. Is that normal for their industry? I have no idea. Operating cashflow is positive, but overall change in cash is negative. That's something I don't usually like.

EV/EBITDA comes in at 12 while P/E is 15. Value stock? No way.

Is this a decent stock? Yes, it does seem like it. If we weren't so long into a bull market, I wouldn't mind accumulating this stock at pullbacks. However, does this fit my traditional criteria of shopping for value? Nope.

I see owning this stock at these valuations as simply having a preference to have returns in the form of dividends paid out, rather than capital appreciation. If prices fell far enough, I think that one day in the future I might be able to look at Neratel as a stock that can deliver both dividends and capital appreciation.

As good as this company is, I would not buy this stock at this price.

Am I greedy? Most definitely.

8 comments:

  1. Yea don't think I will buy at this moment too

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    Replies
    1. Hehe, we can wait together then! Any price or valuation targets you are waiting out for Jimmy?

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  2. Replies
    1. Alamak, $0.67, I think Neratel don't want you, haha!

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  3. Hi GMGH

    Very good observation and analysis on the company and one of the much better ones I've seen around.

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    Replies
    1. Hey B,

      I've only got good observation, but you had a good play! Very very nice taking profit at $0.76 before the waterfall decline!

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  4. Do you think the latest dividend cut by Neratel in Q4 2015 is a sign of things to come ?

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    Replies
    1. Hi betta man, tbh I'm not really taking any actions. The markets seem very directionless and I don't feel like I have enough information to do anything yet. I will continue to wait, and I might add more in the future.

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