Popular Answers to Member Questions 

Question 1: Chartwell Retirement Residences (CSH.UN) has a price/earnings ratio of 339x. (TD provided data)
Is this normal? How should we rationalize this and how should we be evaluating the company?

Answer 1: Many companies have various accounting charges which impact earnings but not cash flow. REITs also have different accounting treatment on some items. Thus, for certain industries (oil and gas also) it is better to look at cash flow metrics.  CSH.UN is expected to generate $0.92 per unit in cash flow this year, so is not nearly as expensive on a price/cash flow basis. 

Question 2: Brookfield Asset Management Inc (BAM.A): Is the poor performance of this stock specific to the company or poor preferred share performance in general? Why are preferreds broadly tanking so badly anyway?

Answer 2: This is a preferred phenomenon, considering BAM common shares are up 34% this year. Preferreds have generally been weak due to interest rate movements. This is a reset preferreds, so investors are concerned about lower dividends when the issue resets. 

Question 3: The P/E on the S&P of 20 seems irrationally high. Any justification for this? Also, private companies typically sell in a P/E range of 3-5. Why do public companies trade so much higher?

Answer 3: Different sources cite P/E in different ways, but we prefer using the forward P/E which is closer to the 16 range in the US which is pretty much right at long-term averages. So there may be some slight over/undervaluation depending on one's views but nothing that we would view as particularly concerning at this stage. On private companies, multiples can vary but private investors need to bear many more risks (less stringent reporting standards, illiquidity) and in turn, lower valuations are required to justify owning the names. The liquidity, access to information and transparency of publicly traded companies garner a premium that investors are willing to 'pay up for'.

Question 4: What is the reason for the technology sector getting beaten up today?

Answer 4: Software stocks were hit across the board today on what largely looks like no clear news that has caused the move. A few events such as the Google antitrust case as well as what looks like a WeWork IPO that might be canceled could be impacting risk appetites for investors. We have also seen some say it could be due to some upcoming index repositioning. Overall, no one really has a clear answer here and sometimes stocks that do well simply just sell off more than others from time to time. Value stocks had a good day today and momentum stocks moved in essentially the opposite way. Regardless, we do not see any clear news causing the weakness. 

Question 5: Can you please comment on the quarterly earnings report of Alimentation Couche-Tard Inc (ATD.B), and it's stock split?

Answer 5: The stock split should be viewed as positive; most investors like them. ATD beat on EPS and slightly missed revenues. EPS was 97 cents vs 88 cents expected; revenue $14.16B vs $14.72B. US comparable sales rose 2.5%; Europe 0.7%; Canada 0.3%. US fuel margins increased and Circle K branding continues. We think investors will like the EPS number and the split, and we would have little concerns here. 

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Disclosure: The author does not hold positions in any stocks or funds mentioned.