Melcor Developments is updated and rated (higher) Buy at $12.04 (Wednesday’s closing price). This has been a frustrating stock that has seemed significantly under-valued for some time. But it just seems to get cheaper. It suffered from a total lack of interest by analysts which results in extremely little trading volume. It basically never issues more shares and seldom issues any convertible debt or other securities that investment banks can profit from. That is part of the reason for the lack of interest.
Other reasons are its inherently cyclical nature. Investors are used to stocks that are valued for predictable earnings not for their assets.
I expect at least one more quarter of reduced earnings. 2020 may be flat or somewhat higher than the weak numbers of 2019. It continues to be cashflow positive even in the face of weak building lot sales. It’s investment properties provide stable cash flows. It’s U.S. building lot sales are also a plus and are ramping up.
Unless Alberta is going to go into a permanent decline or stagnation, this company should ultimately return to higher profit.
The stock is far under-valued based on assets. But it does seem that it is in a relatively low ROE business and that is a negative.
There is nothing on the immediate horizon to boost the share price and so continued patience will be required.
It does pay a 4% cash dividend yield.