North West Company Inc. (TSX: NWC), one of the leading retailers to rural communities and urban neighbourhood markets in Canada, Alaska, the South Pacific, and the Caribbean, announced its second-quarter earnings results after the market closed on Thursday, and its stock responded by falling 5.49% in Friday’s trading session. The stock now sits more than 11% below its 52-week high of $33.74 reached back in May, so let’s take a closer look at the quarterly results and its fundamentals to determine if now is the time to buy.
Breaking down the Q2 results
Here’s a quick breakdown of 10 of the most notable financial statistics from North West’s three-month period ended on July 31, 2017, compared with the same period in 2016:
| Metric | Q3 2017 | Q3 2016 | Change |
| Sales – Canada | $293.67 million | $283.47 million | 3.6% |
| Sales – International | $214.20 million | $177.10 million | 20.9% |
| Total sales | $507.87 million | $460.57 million | 10.3% |
| Gross profit | $152.56 million | $136.69 million | 11.6% |
| Adjusted EBITDA | $46.92 million | $42.04 million | 11.6% |
| Adjusted EBITDA margin | 9.2% | 9.1% | 10 basis points |
| Net earnings | $23.26 million | $16.42 million | 41.6% |
| Net earnings per diluted share | $0.46 | $0.34 | 35.3% |
| Adjusted net earnings | $22.72 million | $19.61 million | 15.9% |
| Cash flows provided by operating activities | $41.81 million | $43.40 million | (3.7%) |
Should you buy on the dip?
It was a great quarter overall for North West, and it capped off a very strong first half of the year for the company, in which its sales increased 9.5% to $984.70 million, its adjusted EBITDA increased 11.1% to $87.11 million, and its adjusted net earnings increased 15.9% to $41.87 million. However, its second-quarter results came in mixed compared with analysts’ expectations, with its EPS matching estimates and its sales falling short of the $512.48 million estimate, so I think that is what caused its stock to sell off.
With all of this being said, I think the decline in North West’s stock was warranted, but I also think it represents a very attractive entry point for long-term investors for two fundamental reasons.
First, it’s undervalued. North West’s stock now trades at just 16.4 times fiscal 2017’s estimated EPS of $1.82 and only 15.1 times fiscal 2018’s estimated EPS of $1.98, both of which are inexpensive compared with its five-year average price-to-earnings multiple of 19.2. These multiples are also inexpensive given its current double-digit percentage earnings-growth rate and its estimated 8.6% long-term earnings-growth rate.
Second, it has a great dividend. North West currently pays a quarterly dividend of $0.32 per share, equal to $1.28 per share annually, which gives it a lavish 4.3% yield. Investors must also note that the company’s 3.2% dividend hike in March has it on track for 2017 to mark the sixth consecutive year in which it has raised its annual dividend payment, making it both a high-yield and dividend-growth play today.
With all of the information provided above in mind, I think all Foolish investors should strongly consider beginning to scale in to long-term positions in North West Company today.
