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Last week one of the biggest shareholders of Apple Inc. (NASDAQ:AAPL) made several billion dollars as the company reported favorable earnings and shares reached an all-time high that gave the company a market capitalization of more than US$1 trillion. North of the border, however, things have been much tamer, as the markets have delivered almost as expected for quite a while now, and no major news has hit the wire.
That could all change in the coming week.
On Monday after the closing bell, Home Capital Group Inc. (TSX:HCG) is going to report quarterly earnings, which are expected to come in at approximately $0.38 per share. Although this would seem reasonable to many, it is actually a lower number than the previous quarter. At a current share price of just under $15, the company would trade at a price to earnings multiple of less than ten times earnings if this number were annualized.
But what is the company really worth?
After the debacle that occurred more than one year ago, which allowed investors the opportunity to purchase shares at less than $10 each (after a huge sell-off), the risk / reward equation quickly reset as the value of the company started to be taken seriously. The situation today is that the value of the balance sheet has been properly restored, as the assets are mainly made up of housing values in Ontario and Alberta. As of the previous quarter, the company carried tangible book value of more than $23, which is steadily increasing as the company continues to retain 100% of the available cash flows.
The huge catalyst that can come for investors within the next week is that shares will jump should management announce either a share buyback or the re-initiation of a dividend. The much bigger catalyst, however would be that Warren Buffett was buying the entire company.
Although many do not think that this would happen, the reality remains that it is not only possible, but there would be substantial benefits to taking this action. As no major transactions have occurred north of the border for the Oracle of Omaha, this smaller acquisition could just be a stepping stone for bigger things to come. Essentially, he has to test out the waters.
What about the Canadian housing market?
As many have witnessed, higher interest rates have made homes a little less affordable over the past few months. Given the slowdown in lending (or more selective lending) by Home Capital Group Inc., the outcome may just become very favorable to investors seeking a bigger financial moat (more cash) in addition to having more money returned to them. In fact, as new mortgage initiations slow down, the capital that is held by the company will have to be utilized somehow.
Before one of the world’s richest individuals gets even wealthier (all by himself), why not join him in making a lot of money!
