From a technical perspective, the stock chart for CanWel Building Materials Group Ltd. (CWX-T), a small cap industrial stock, is positive.
Vancouver-based CanWel distributes building materials, lumber, and renovation products to Canadian and U.S. customers. In addition, CanWel operates a forest products company through its Jemi Fibre division.
The chart for CanWel is interesting as the stock appears to be on the verge of displaying a bullish "golden cross" pattern.
A "golden cross" occurs when a short-term moving average, in this case, the 50-day moving average, crosses above a longer-term moving average, in this case, the 200-day moving average. When this occurs, it marks a potentially positive signal, suggesting the upward price momentum may have traction. Many traders suggest waiting until the 50-day moving average crosses above the 200-day moving average by a certain percentage, such as 3 per cent, to confirm the bullish signal.
With respect to CanWel, both the 50-day and 200-day moving averages are rising with the share price trading above both of these moving averages – a positive characteristic. In addition, the 50-day moving average (at $6.10) appears poised to cross above the 200-day moving average (at $6.10).
Over the past several years, the share price has been locked in a range, trading largely between $5 and $6.25. If the stock price can break and hold above $6.60, a key level of initial resistance, the share price could rally back up to $7.
From a fundamental perspective, the majority of analysts are positive on CanWel. There are six analysts with buy recommendations and two analysts have hold recommendations. There are no sell recommendations.
Steady earnings growth is forecast for the company. The Street is forecasting earnings before interest, taxes, depreciation and amortization (EBITDA) of $60.6-million in 2017, up from adjusted EBITDA of $51.0-million reported in 2016, and anticipated to rise to $66.8-million in 2018. Additional growth may come from future acquisitions. In April, the company completed a bought deal equity financing, raising approximately $40-million through the issuance of over 6.5-million shares at a price of $6.10 per share. Management indicated in a news release that the proceeds were earmarked to fund its growth stating, "The net proceeds of the Offering will be used initially to fund a reduction of the Company's revolving credit facility, which is expected to be drawn in the future to fund potential acquisitions, and for working capital and general corporate purposes. Specifically, the Company is evaluating additional acquisitions of U.S. and Canadian pressure-treated wood operations and expects to announce any acquisitions in due course once definitive agreements are reached."
According to Bloomberg, the stock is trading at an enterprise value-to-EBITDA multiple of 10.4 times the 2018 consensus estimate. Analysts' target prices are concentrated in the low to mid-$7 range. The average 12-month target price is $7.25, implying the share price has nearly 12 per cent upside potential.
The company pays its shareholders a quarterly dividend of 14 cents per share, or 56 cents per share on a yearly basis. This equates to an annualized dividend yield of 8.6 per cent. The company has maintained its dividend at this level since 2012.