What are we looking for?
With the economy picking up, we thought we’d look at healthy Canadian and U.S. companies that benefit from consumer spending. We screened for companies with a net income margin greater than 15 per cent and with an inventory turnover ratio greater than 24, which shows they can turn their inventory into sales quickly. We added the criterion that their shares trade at a forward price-to-earnings ratio of less than 20, to ensure they are not overly expensive.
What did we find?
We are accustomed to handing over our money to some of the highest profit-margin companies on the S&P Capital IQ screen – Apple Inc., Google Inc. and McDonald’s Corp. But they are topped by three that are far from household names across Canada.
Halifax-based Killam Properties Inc. is one of Canada’s largest landlords, with assets in Atlantic Canada and Ontario. It owns apartment buildings, which account for 82 per cent of its net operating income, and trailer parks, which it calls “a stable and predictable asset class,” with occupancy levels of 98 per cent and turnover of 1 per cent. The consensus analyst rating on the stock is “buy,” according to Thomson Reuters data.
Gamehost Inc. is a Calgary-based company whose operations include the city’s Deerfoot Inn & Casino and Fort McMurray’s Boomtown Casino as well as Grande Prairie’s Great Northern Casino. It is more profitable than its giant rival, Las Vegas Sands Corp., which runs luxury casino-resort complexes, such as the Venetian and the Palazzo in Sin City, as well as in Singapore and Macau.
Winmark Corp. is better known to the consumer as the owner of the Play It Again Sports and Once Upon a Child franchises that sell used equipment and clothing. Another division of the company leases equipment and provides financing to businesses. Thomson Reuters Stock Reports+ rates this stock 10 out of 10.
Another company that deals in used goods is Copart Inc., which says it sells more than a million vehicles a year over the Internet and offers 50,000 vehicles a day for buyers to bid on.
Movie-theatre operator Carmike Cinemas Inc., based in Columbus, Ga., made the list. By the way, its far larger rival Cineplex Inc. did not because it trades at a P/E of just above 20 and its net income margin is 11 per cent.
Gunmaker Sturm Ruger & Co. is also featured. One red flag to be aware of is that its dividend appears unsustainable, according to Thomson Reuters research. Its dividend yield is 3.5 per cent. The company points out that it has zero debt.
As always, use this screen as just a starting point for further research before buying any of the stocks listed here.
Highly profitable consumer goods companies with high inventory turnover
|Killam Properties Inc.||KMP-T||1,310.8||72.0|
|Carmike Cinemas Inc.||CKEC-Q||792.6||146.6|
|Sturm Ruger & Co. Inc.||RGR-N||990.1||28.9|
|Las Vegas Sands Corp.||LVS-N||59,059.8||169.6|
Source: S&P Capital IQ
Margin % [LTM]
Forward P/E -
|Killam Properties Inc.||KMP-T||1,310.8||72.0||549.8||40.1||6.99|
|Carmike Cinemas Inc.||CKEC-Q||792.6||146.6||443.3||16.2||18.3|
|Sturm Ruger & Co. Inc.||RGR-N||990.1||28.9||1,054.9||15.6||12.8|
|Las Vegas Sands Corp.||LVS-N||59,059.8||169.6||50,625.6||15.3||19.0|