I have held SXP for a couple of years now, bought at $2.10. They have been climbing higher over the past few months and I cannot find out why. Any ideas, and would you sell or hold.
Thanks
Andrew
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Hey Andrew,
Thanks for the assignment and congratulations on your profitable pick! Supremex Inc. is Canada's leading manufacturer and marketer of envelopes. Through 2010, they were very active rolling up the competition and now control 60 per cent of the market, providing a significant barrier to entry. One rule of thumb in business is that in a declining segment the only way forward is to consolidate the space. Clearly management at SPX followed the rule.
In their most recent corporate presentation from April of 2015, the company reported that 75 per cent of their revenue is earned in the production of customized envelopes. In addition, management is looking towards growth opportunities in the packaging and specialty products segment related to fulfilment of online shopping.
Since 2008, SXP has been using its free cash flow to pay down its debt and is now in a position to once again beginning the hunt for acquisitions. One reason that the stock has moved higher in recent months could be attributed to increased attention from the sale of 44.7 per cent of the shares by a major shareholder in November of 2014. I also came across recent comments by brokerage houses and online forums which can also drive new buyers into the market.
An scout of the charts will add further texture for your consideration.
The three-year chart is what dreams are made of. The outstanding features include an intact uptrend line and the golden cross that formed in May of 2013 when the stock was trading for $1. There have been tests of support along the 50 and 200-day moving averages over the last two years but buyers have remained in control of the market.
The six-month chart provides a close-up of the support along the 50-day moving average that the shares have been enjoying. The RSI indicates that the stock has been attractive to buyers even at higher prices. What is also encouraging is the series of higher highs and higher lows on the chart.
With a 3.97-per-cent dividend yield and favourable technical patterns, it appears that SXP has more to give.
Next time, I will examine the case for Maple Leaf Foods Inc. for George.
Make it a profitable day and happy capitalism!
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