I like to cook with wine. Sometimes, I even put it in the food.
For all you wine connoisseurs out there, this stock may be the perfect pairing to diversify your TFSA or RRSP portfolio.
Peller (TSX:ADW.A) was founded over 40 years ago when a Hungarian immigrant named Andrew Peller opened a winery in Okanagan Valley, British Columbia. Fast forward to 2019, the company owns over 10 different brands from the eponymous Peller Estates to the mid-range Wayne Gretzky Estates to its premium Trius Winery brand.
The company was recently in the news due to its introduction of a revamped Peller Family Vineyards brand which it hopes to capture a larger share of Canada’s $11 billion wine market. This revamped brand will focus more on the everyday consumer with wines that can be consumed during “mud pie dinners and epic fail wedding proposals.”
Peller is a good investment based on its high operating cash flows and its high asset to liability ratio.
High operating cash flows
Cash provides the foundation for every successful business. Companies don’t go bankrupt because it lacks assets or it has too much liabilities, but rather because it is strapped for cash.
Thankfully, with operating cash flows in excess of $21 million in each of the past five fiscal years, Peller isn’t in this position.
Operating cash flows represent cash derived from the company’s main line of business. In the case of Peller, the company generates cash from selling wine and other alcoholic beverages to the LCBO and retailers overseas.
The company recorded operating cash flow of $49 million in fiscal 2019, the highest it has been in the past five fiscal years.
Investors should be delighted with this news, as it indicates that Peller is a growing business.
High asset to liability ratio
Peller reported assets of $467 million in fiscal 2019 compared to liabilities of $232 million. This effectively results in an asset to liability ratio of 2:1.
This is beneficial for the company, as it indicates that it can use assets to grow the business. One metric that analysts use to determine the future earnings power of the company is working capital.
Working capital is calculated by subtracting current liabilities from current assets. Given current assets of $197 million and current liabilities of $99 million, the company has a working capital surplus of $98 million.
Investors should be thrilled with this, as it indicates the company has enough money to service its liabilities plus an additional $98 million it can commit to growing the business.
Summary
As a wine fanatic myself, it’s hard to pass up the opportunity to diversify a TFSA or RRSP with Peller.
Given its high operating cash flows, Peller is well positioned to continue growing and delivering superior returns to its investors.
With assets that exceed liabilities by a factor of two, investors can sleep easy at night knowing that the company is committed to dedicating its additional resources to growing the business.
Although only two things are certain in life – death and taxes – I think it’s fair to say that Canadians will be consuming wine for many years to come.
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