BC Business
HDI's growth in revenues and earnings suggests it may be able to transcend a downturn that already seems baked into its stock price.
The stock: Inflation can be a fickle companion. A year ago, investors had fallen hot and heavy for the building supply sector, whose profits were spiking thanks to a pandemic-driven passion for home improvement. In retrospect, that was a warning shot of the inflation that would later take hold across the economy. Now new investment in residential construction is threatened by the rising interest rates those higher prices brought on. Companies like Langley-based Hardwoods Distribution (TSX:HDI) have seen their shares fall around 25 percent year-to-date. HDI closed at $33.47 on Tuesday, down from a high of $48.50 in November.
The drivers: As a midstream manufacturer and distributor of wood panelling and other high-grade architectural building products across North America, Hardwoods feels the push and pull of inflation and supply chain issues from both directions. In the U.S., where it does 90 percent of its business, the year-over-year change in the Consumer Price Index just hit 8.5 percent. But HDI’s growth in revenue and earnings suggests that it may be able to transcend a downturn that already seems baked into its stock price.
Sales jumped 74 percent in 2021, to US$1.6 billion. The increase was divided about evenly between organic growth and acquisitions, which included Michigan-based Novo Building Products for US$306 million. (More recently, in 2022, Hardwoods closed the purchase of Mid-Am Building Supply of Missouri, too.) Basic net profit per share for the year grew 264 percent, to US$4.81.
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When you cut out the macroeconomic noise, you can see that HDI has grown its adjusted profit per share at an annualized rate of 37.8 percent over the past five years, and its share price by 22 percent. Meanwhile, the company has been steadily boosting its dividend to 12 cents a share, for a yield of 1.43 percent, earning it admittance to the S&P/TSX Dividend Aristocrats Index.
Word on the street: In a note Monday, Canaccord Genuity analyst Yuri Lynk called HDI “an especially cheap stock in a cheap sector.” He has a “buy” rating on the shares with a $60 target, reasoning that the building products sector’s fundamentals still point to strong demand going forward.
Coming and going: Vegan food processor The Very Good Food Co. (TSXV:VERY; NASDAQ:VGFC) has chopped ties with CEO Mitchell Scott and chief research and development officer James Davison. The Vancouver-based company will be led by an executive committee while the search proceeds for a new chief executive.