ARG - Airgas, Inc.
Dividend investing is a popular strategy with investors seeking an income stream. Dividend investors can be placed into two broad categories.
- The growth approach - buy dividend paying stocks with emphasis on the company's ability to grow and increase its future dividend payments (to maximize the future yield).
- The yield approach - buy dividend paying stocks at cheap prices (to maximize the current yield).
Dividend investors using the growth approach tend to look for the same basic growth characteristics as found with growth investing, but the stock must also pay a reasonably reliable dividend.
Dividend investors using the yield approach tend to be more concerned with the stock price and the companies ability and willingness to pay a regular dividend rather than its ability to expand.
Sometimes a company will satisfy the requirements for both approaches.
In the October 2014 issue a fundamental analysis is conducted on a selected sample of stocks. The analysis is based on fundamental data from one year ago. This allows financial students and investors to see how the stock price performed over the next 12 months after the hypothetical purchase.
Airgas, Inc. NYSE:ARG is a mid-cap commodity chemicals company and its stock trades around $34 million per day. ARG is a mature company that was founded in 1982 and has a long established history of paying dividends.
The key fundamentals for ARG are shown below.
Growth fundamentals for ARG
The fundamental data above shows that ARG has broadly increased its revenue, earnings, dividends and book value over the last decade. These are the characteristics of an expanding company which indicates that ARG is a growth stock that pays a regular dividend. The annual dividends have increased for every year over the last decade.
Fundamental Analysis for ARG:
The return on equity is reasonable and averages around 15% in recent years. The profit margin (profit to revenue ratio) is quite low and averages around 6%.
The current ratio (current assets to current liabilities) ranges from 1.3 to 1.9 which indicates that ARG has a sufficient amount of working capital.
The debt ratio (long-term debt to tangible assets) averages around 1.1 which means that ARG carries a moderate amount of long-term debt. Intangible assets and goodwill are not included in the ratio calculation. The tangible assets are used for the ratio calculation because these are hard physical assets that can be sold off in the event of bankruptcy liquidation whereas intangibles and goodwill cannot be sold.
The total ratio (total liabilities to total assets) averages around 60% which means that ARGs total debt is 60% of its total assets.
The earnings growth for the 2013 fiscal year is projected to grow at 10% (based on the five year earnings growth trend). The revenue is projected to grow at 6% (based on the five year revenue growth trend).
The forward PE ratio is around 22 (calculated from the five year earnings growth trend rather than from forecast earnings). The Forward PEG is around 2.2.
The current business valuation would drop to around $34 if ARGs earnings growth stops (with a 2.7% ten year Treasury bond yield). The book value is around $20 and if ARG does run into financial problems in the future this gives an idea of how far the stock price could drop.
The bankruptcy risk can be calculated using the Z-score. ARGs Z-score is 1.8 which means ARG is a moderate bankruptcy risk stock.
The sample analysis uses data that is one year old. The hypothetical purchase date for the stock is 25-Sep-2013 and this allows the reader to see how the stock performed over the next year.
ARG had its 2013/06 quarterly results released prior to 25-Sep-2013 and this information is available for the analysis. The 2013 Q2 earnings showed a decline of 2% over the same quarter from a year ago (2012 Q2). The 2013-Q2 dividend is $0.48 for the quarter which is a 20% increase over the same quarter from a year ago (2012 Q2).
Overall the fundamentals are strong with this mid-cap dividend paying stock which has some growth characteristics as a bonus. Additional information such as consensus forecast earnings, broker recommendations and insider transactions are not considered for this sample analysis. A hypothetical position taken in ARG on the 25-Sep-2013 would give a purchase price of around $105.
The stock price performance is shown below in Chart 1. along with the annual earnings year to year growth. The stock chart is adjusted for splits and dividends.
Chart 1. Stock chart with earnings for ARG
As shown in Chart 1. above, ARGs gained around 7% over the next year including dividends. ARGs 2014 annual earnings increased by 5% over the 2013 annual year and its 2014 annual dividends were $1.92 which is an increase of 20% over the 2013 annual dividend.
Stock Analysis for Finance Students and Investors