Before I dive into my analysis of George Weston (TSX: WN), I wanted to make it very clear that the stock price should not be a deterrence for you when it comes to purchasing a stock. Granted you have the capital, the focus should be on the potential for a return on investment rather than the initial outlay.
The reason I am saying this is because many people I know (my prior self, included) shy away from buying a stock because of the stock price when all that truly matters is the potential for the stock to make capital gains.
For example, if company ABC is trading at $10 a share and company XYZ is trading at $100 a share and the shares increase 10% for both companies, you would have made a $1 return for the former company and a $10 return for the latter company.
Simply put, you increased your returns by 10 times with the more expensive stock.
Now that I have addressed your reluctance, let’s take a closer look into George Weston.
Diversification
You would be hard-pressed to find a company on the TSX with greater diversification than George Weston.
The company owns PC Financial, Loblaws, Joe Fresh and Shoppers Drug Mart, just to name a few.
PC Financial is the personal finance division of George Weston. It offers three different Mastercard credit cards for a variety of income thresholds.
Loblaws is the supermarket division of George Weston. It owns a variety of supermarket chains, including T&T Supermarket, Real Canadian Superstore and Fortinos.
Joe Fresh is the apparel division of George Weston with independent retail locations as well as ones inside Loblaws stores.
Shoppers Drug Mart is the drug store division of Loblaws, but also engages in selling products from other George Weston subsidiaries.
George Weston has its hands in many baskets, which gives it some protection from the ebbs and flows of the economy.
Increasing net income
Net income increased from $126 million in FY 2014 to $759 million in FY 2017 but dipped slightly to $574 million in FY 2018.
Despite this decrease, the company’s accumulated net income is $2.5 billion, which is impressive.
Given George Weston’s acquisition-centric growth strategy, there is indication that the net income will continue to increasewhich drives the share price.
An example of this is when Loblaws acquired Shoppers Drug Mart in 2013. Since then, George Weston’s net income increased by a compounded annual growth rate of 56.66% which resulted in a share price increase of 29.42% during the same period.
Bottom line
At over $100 per share, due diligence is a necessity to ensure a decent return on investment.
Based on my research, George Weston is a solid company for two main reasons. First, the company is heavily diversified in industries ranging from personal finance to apparel. This allows it to generate revenues from multiple sources and helps combat the cyclical nature of the economy.
Second, the company’s net income increased every year from FY 2014 to FY 2017 before dipping in FY 2018. The accumulated net income is $2.5 billion which is significant.
George Weston is a solid company, and there is evidence that indicates its share price will continue to climb.
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