If You Want Growth Without Too Much Risk, Buy This Stock

Richelieu Hardware Ltd. (TSX:RCH) is a good stock to own if you’re looking for steady, low-volatility growth.

When you think about growth stocks, technology stocks probably come to your mind. But there are growth stocks in other sectors that are worth looking at.

One stock that is not very well known but deserves attention is Richelieu Hardware Ltd. (TSX: RCH). This hardware company is growing at very interesting rates while having a low volatility. Let’s look at this company more deeply to see why it’s such a great growth stock.

A market leader in specialty hardware products

Richelieu Hardware is an importer, distributor, and manufacturer of specialty hardware products. It offers a huge product selection of about 110,000 different items, ranging from kitchen cabinets to lighting systems to decorative products.

This Montreal-based company is selling both to manufacturers and retail customers for a total of more than 80,000 customers.

Those customers are served by 70 centres throughout North America — 37 distribution centres in Canada, 31 in the United States, and two manufacturing plants in Canada. Those manufacturing plants are Cedan Industries Inc., which specializes in the manufacturing of a wide variety of veneer sheets and edgebanding products, and Menuiserie des Pins Ltée, which manufactures components for the window and door industry as well as a wide selection of decorative mouldings.

Not a trendy business, but the numbers are solid

Richelieu Hardware’s sales rose by 15% to $253.2 million in 2017 third quarter, with 6.9% due to internal growth and 8.1% to acquisitions. For the first nine months of fiscal year 2017, sales reached $692.4 million, up 10.5% from a year ago.

Net earnings attributable to shareholders were $18.1 million, up by 4.6% in the third quarter, and rose by 9.4% to $47.7 million for the first nine months of 2017.

Net earnings per share rose to $0.31 basic and diluted compared with $0.30 basic and diluted for the third quarter of 2016 — an increase of 3.3%.

For the first nine months of 2017, net earnings per share amounted to $0.82 basic and $0.81 diluted compared with $0.75 basic and $0.74 diluted for the first nine months of 2016 — an increase of 9.3% and 9.5%, respectively.

Double-digit growth in earnings of 16.30% is expected for the next five years.

Richelieu Hardware is financially very healthy, being practically debt-free, with $22.3 million in net cash and $293.8 million in working capital. The return on equity and the return on invested capital are both very near 17%.

Richelieu Hardware grows by making acquisitions. On August 1, 2017, the company acquired Tamarack, a specialty product distributor in Cincinnati, with the goal of increasing its presence in the Ohio market, where it already operates a distribution centre.

The stock pays a dividend, although not a big one. The quarterly payout is $0.0567 a share ($0.2268 annually) for a yield of 0.7%. The company has a recent history of raising its dividend every year, which is a positive sign.

Richelieu Hardware is also buying back stocks, purchasing more than one million shares for $23.1 million in 2016.

What could hinder the purchase of the stock is its current high share price. Richelieu Hardware’s share price has been rising steadily for many years, returning 15% over 15 years, 23% over five years, and 30% over one year. If you find the P/E of 28 too high for you, you can wait for a pullback in the share price.

Rising interest rates should eventually give a boost to Richelieu Hardware’s share price, as industrial stocks benefit from increased production through higher demand for goods.

Fool contributor Stephanie Bedard-Chateauneuf has no position in any stocks mentioned.

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