After gradually trimming his stake over the past month, Fairfax Financial Holdings (TSX:FFH, Financial) CEO Prem Watsa (Trades, Portfolio) pulled the plug on Intrepid Potash Inc. (IPI, Financial) on June 6.
According to GuruFocus real-time picks, the guru cashed in on his 10.4 million remaining shares of the fertilizer manufacturer, which was his fifth-largest holding, for an average price of $4.63 per share, impacting the portfolio by -3.01%. GuruFocus data shows he has made an estimated gain of 131% on the investment since establishing the holding in the first quarter of 2017. He began reducing the position in May.
The Denver-based company, which is the largest producer of potassium chloride in the U.S., has a market cap of $603.02 million; its shares were trading around $4.60 on Friday with a forward price-earnings ratio of 47.85, a price-book ratio of 1.46 and a price-sales ratio of 3.61.
The Peter Lynch chart below shows the stock is trading slightly higher than its fair value, suggesting it is overpriced.
It is, however, trading close to its median price-sales value.
Earnings and performance
In April, the company reported first-quarter earnings of 1 cent per share on $53.2 million in revenue. Its net income of $1.8 million was an improvement from a net loss of $13.7 million in the prior-year quarter. Chairman, President and CEO Bob Jornayvaz said the improved performance was the result of “solid operational execution” and strategic strengthening of the business.
“Our focus on by-products led to lower potash costs and an improvement in margin compared to the prior year,” he added.
Intrepid Potash’s financial strength and profitability and growth were both rated 5 out of 10 by GuruFocus. While the company’s interest coverage does not meet Benjamin Graham’s standard of 5, its Altman Z-Score of 3.19 indicates it is financially stable.
Additionally, although the company’s margins and returns underperform a majority of its same-sector peers, it is supported by a moderate Piotroski F-Score of 6 and a business predictability rating of one out of five stars.
GuruFocus cautions, however, that the company’s revenue has declined roughly 23.10% per year for the past five years.
Portfolio
Commonly referred to as “Canada’s Warren Buffett (Trades, Portfolio),” Watsa’s investment strategy mimics the practices of the Berkshire Hathaway (BRK.A, Financial) (BRK.B, Financial) CEO in that his insurance conglomerate purchases entire companies as well as invests its float in publicly traded companies.
Watsa’s portfolio, which is composed of 33 holdings, is largely invested in the technology sector. Founded in 1986, Fairfax Financial has achieved 19.4% compound annual growth in book value through 2017.
Disclosure: No positions.
