Many investors have a few favourite stocks that they typically keep an eye on. If the stocks dip, either due to a broad market correction, or some internal matter, they try to buy the dip. It keeps life simple, since investors have a limited selection of securities on their radar and they usually understand the companies well enough.
But every once in a while (typically once every 10 years), there comes a market crash like the one we are experiencing right now, which places a huge discount sign on almost all the stocks trading on the TSX. Some fall 5 to 10%, while some are available at half the price.
In situations like these, many savvy value investors cast a wider net to make sure that they are picking up the best discounts the market has to offer during the crash.
If you’re such an investor, you may want to consider looking into Wall Financial Corp (TSX:WFC) – a small real estate stock that is trading below 40% of its yearly high value. The company does offer dividends, but its history is too inconsistent to be reliable.
A much better reason to buy into this discounted stock is its growth potential. Before the crash, the stock price for the company grew by almost 200%.
Like any other, this little stock has its own share of good and bad metrics and evaluations.
One of the riskiest things about the company is its short-term debts. Total current liabilities add up to the US $383.9 million, whereas the total current assets are a mere half of the liabilities, US$216 million. The other thing that you might not like about the company is its dividend history. Though last year’s yield and payout ratio are both promising, the pattern is uneven.
While the company didn’t report a loss in the last quarter’s result, the numbers were low compared to the previous quarter. Revenue, gross profits, and EBITDA in the fourth quarter were significantly lower than in the third quarter. The first quarter of 2020 will shed more light on the company’s underperformance, especially from its hotel properties.
The long-term asset to liabilities ratio of the company is in the clear. The company has reduced its debt-to-equity ratio significantly in the past five years. Its five-year beta is relatively stable at 0.87, which means that you won’t be adding a lot of volatility in your portfolio. Its return on equity is pretty decent, 50.7%, and has a fair amount of cash ($58.9 million).
Even in this rut, the company has a five-year compound average annual growth rate of 14%. If the company starts growing again, your capital might increase at a rapid pace. With the company’s operating income where it is, it’s possible that it doesn’t issue a dividend at all. But in good times, the company has been generous with its once-a-year payouts.
If you are planning to invest in Wall Financial, you can’t ignore the risk it carries. It’s a dependency on residential real estate, and hotel properties make it a bit vulnerable right now, which explains the continuous downward movement of the stock price.
But when it rallies, it might recover and re-grow much faster than others in the sector.
Speaking of discounted stocks...
Motley Fool Canada's market-beating team has just released a new FREE report that gives our three recommendations for the Next Gen Revolution.
Click on the link below for our stock recommendations that we believe could battle Netflix for entertainment dominance.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Adam Othman has no position in any of the stocks mentioned.