We noticed an article on SeekingAlpha.com dated May 12, 2016 titled “Ritchie Bros.: Bull Thesis Playing Out Despite Continued U.S. Dollar Strength” by John Zhang. Although the article allows only paid subscriber access, we believe that as a follow-up article to one published on December 29, 2015 titled “Ritchie Bros: Auctioneer Trading At Bottom Prices”, where the stock price increased +35.41%, there should be at least a cursory review of the stock. After all, Mr. Zhang was spot-on with the stock price in December 2015, so there must something in what is being considered.
We’re going to reconsider Ritchie Brothers (RBA) from the perspective of Edson Gould’s Altimeter. As a review, Gould’s Altimeter is a measure of the stock price relative to the dividend that is paid. This is a fundamental approach to looking at a company. Yes, there is a chart, however, the chart is reflective of a ratio similar to price-to-earnings ratio, price-to-sales ratio or price-to-book ratio.
Based on Gould’s Altimeter, we’ve outlined a range (red horizontal lines) which we think is part of a long term pattern for a mature company experiencing steady earnings growth and a history of reliable dividend growth. It should be understood that the declining trend is typical of companies that are in a growth stage or have initiated a dividend policy and are adjusting to the “newness” of meeting the expectations of such a policy.
Considering the above Altimeter, it appears that RBA is at a threshold that has not been exceeded since early 2011. Based on the current dividend, if RBA manages to achieve the peak of 2011, the stock could rise to $48.00.
While RBA has a $48 upside resistance target, there seems to be some difficulty in believing that the stock doesn’t need some kind of reprieve from the most recent parabolic move in the price. We’d be impressed if the stock can continue higher, as we still hold the stock. A rebound in the Canadian economy could be the necessary impetus to push RBA much higher. However, anyone considering buying RBA at the current level wouldn’t necessarily be getting the best value.