I was just curious as to what people thought about Leggett & Platt in terms of a sell? I'm up a decent amount of money (though I'm not selling because "I'm up"), and the P/E ration is a whopping 72.61 (and set to drop to about 19, according to Yahoo Finance). Between that and its huge payout ratio (209%), I think the company's share price is going to bottom out.
On the other hand, it's been such a reliable dividend payer, constantly growing its dividend, that I would hate to sell it. Plus, there's dealing with capital gains tax. Blegh.
I'm just curious as to what other people's thoughts were. Usually I'm very hesitant to sell, as every business in my portfolio is a revenue generator. But at its current valuations, I'm wondering if it's best to take my money and move it elsewhere.
The yield and dividend growth rate are both barely above 3%. That doesn't add up to much compared to the opportunities out there. I'll pass, and if I owned it I'd sell.
I bought it in December at around $30, just sold it for $41. I hate to sell a dividend payer, but at a P/E of over $70, my money can be better put to use elsewhere.
Joey, I don't think you did the wrong thing because of the growth rates but you ought to look and see why the P/E was so high when you have a company in that situation.
Did the earnings drop or did traders bid up the price to such a high level?
If earnings dropped, why? Is business going south or did they take some extraordinary charges? Many extraordinary charges are non-cash, short-term events. For example, ESV's earnings went negative when they took a huge write-down on stacked jackup rigs that they wanted to remove from the fleet and sell. Their words for it were impairment charges which are non-cash. What caught my eye was the last few times they overestimated the writedown and when they finally sold the rigs, they got more than they were expecting and had to add the excess back. On the other hand, WAG's P/E shot up to the 30's when they decided to purchase the rest of Alliance Boots which entailed a large cash & share expense along with acquisition costs to complete the transaction. Analysts are expecting the earnings to show a double digit increase ex-items over the next couple years because of the purchase which will show up in the cash flow statements. Over the longer term, that should boost their earnings potential.
If the cause is because of investors bidding up the price to obscene levels, then it is probably best to take your profits and move on or wait for the price to drop significantly to get back in.
In LEG's case, they are facing strong headwinds due to Chinese dumping bed springs on LEG's market. They recently asked the FTC to take action against it but in the meantime, they're going to be challenged making a profit when trying to compete with underpriced products from abroad for the next several years.