Tuesday, August 26, 2008

Hart Stores: First Look

Hart Stores Inc. (TSE:HIS) is a department store retailer operating 80 stores in primarily Eastern Canada. This is a family run business with the Hart family controlling 56.7% of the outstanding common shares.

This company caught my attention for several reasons. First, the price to book value on the stock is around 0.60. Secondly, the price to earnings is only 7.7 times. Thirdly, the company is earning a pretty decent return on its invested capital calculated to be approximately 10%. The company is a small cap stock with a market capitalization of $28.56M. As we mentioned here, small cap stocks often are not as heavily followed as large cap stocks and for this reason can be priced inefficiently in the market.

The company has positive operating margins that were fairly stable from 2002 to 2006, but over the past 2 years, operating margins have declined. Total sales are also down this past year over year from $166.4M to $161.6M. During the last 2 years, the company's stock has substantially declined in price from $4.72 on Aug 25, 2006 to $2.10 on Aug 25, 2008. It's possible the market may have been overly pessimistic towards the stock.

At this point, the company looks interesting and I will discuss it further in my next post.

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