In the grips of temptation

Canadian Helicopters is the star performer in our Low P/E- Moderate dividend portfolio. Over the last six months it has increased just over 50% in price (see chart below). Splendid – should we give in to the temptation to grab the profits and run? The gains are exceptional in today’s market!  Well it was our intent not to touch the portfolio until year-end and then to rebalance it. But a 50% profit! What to do?

First we should first check out why the stock has done so well. After all, we bought it for a low P/E and a moderate but good dividend yield. Globe Investor tells us that the current dividend yield is still a desirable, although not spectacular 3.1%. Is it expensive based on P/E?

My spreadsheet claims that based on last year’s available earnings of $2.14 it is trading at a P/E of 16.2!  We’re going to the database of the Canadian Share Owner Association and it reports earnings for 2010  at $2.14, while currently Globe Investor reports that 2011 earnings are now $3.84. At $2.14, Share Owner’s software calculates a P/E of 16.2… Expensive! However based on the latest earnings of $3.84 the P/E is only 9.02. Still quite cheap!

It looks like most of the value increase is directly related to a significant jump in earnings and revenue.  According to our on-line search of press releases this was because of an acquisition made by Canadian Helicoptors in New Zealand and because of better operations at home. The stock is still trading at a very modest P/E. Ergo, no reason to sell. We bought the company at a great price last January and we will stay around for the rest of the ride up.