Coast Wholesale Appliances CWA

The Facts (as of July 27, 2011)

Share price: $2.85. Book value per share: $8.66. Market cap: $28.6 million (small). Distribution: $0.035 per month or $0.42 per year. Current yield: 14.7 P/E: 6.5. Debt/equity ratio:0.18. Payout ratio 72%.

The Story

Coast Wholesale Appliances Inc. (Coast) is a leading independent supplier of major household appliances based in Vancouver, BC. Coast sells to developers and builders of multi- family and single-family housing, designers and retail customers across Western Canada and in the Greater Toronto Area of Southern Ontario.

Coast Wholesale has taken a real beating in the market. Their recent earnings report wasn’t very good, but it wasn’t as bad as might have been expected, given the economic environment. Some of it was due to seasonality, which will be reversed over the next two earnings reports.

Pros

The level of debt is very reasonable and the company normally enjoys positive free cash flow (except this quarter, due to a one-time cost). They appear to have good management and they have expanded into the GTA, which should give them opportunity to expand their market. There have recently been some small purchases by insiders around $4.50.

Cons

The prior CEO appears to have been fired, although the company is now being run by one of the founders, who was CEO for 20 years. The severance cost the company $805,000, but that was a one-time cost. The fortunes of this company are tied to the housing market which, in Canada, is still not out of the woods.

Impression

I own these units, and I have decided to buy more. Unfortunately, I put my order in at $2.75 just before the stock dropped to $2.20. I believe that the extreme volatility is at least partly due to the thin trading volume. The current yield is very generous and I expect results to be better, if not for Q2, then for Q3 in about four months time.

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