Taiga Building Products Ltd (TSX: TBL) is a Canadian based company which is engaged in the production and wholesale distribution of building products. The company’s products range includes composite decking, engineered wood, flooring, insulation, lumber, moduling, panels, polyethylene, preserved wood, roofing, and siding.

Why should Investor’s book profit?

• Weak Liquidity: At the end of Q3FY21, the company reported its quick ratio and current ratio of 1.09x and 2.01x, respectively, lower the industry median of 1.24x and 2.18x, respectively. This indicates that the company is struggling to fund its current assets with its current liabilities.

• Longer cash conversion days: At the end of Q3FY21, the company reported higher cash conversion period of 90.6 days, which is significantly higher than the industry median of 67 days. A lengthy cash conversion period depicts that the group is taking higher time to convert its inventories into cash flows as compared to the industry median. This indicates lower operational efficiencies and remains a key concern.

• Weak margins: At the end of Q3FY21, the company reported negative EBITDA margin and negative operating margin of 0.4% and 0.9%, respectively, as compared to the industry median of 13.4% and 11.1%, respectively. The company recorded a negative net margin of 1.1%, as compared to the industry median of 7.8%. The indicates poor operating performance, and continuation of the above trend is likely to dampen the upcoming performance.
  

Stock Recommendation:             

The company reported a net loss of CAD 5.2 million in Q3FY21, as compared to a net profit of CAD 33.4 million in pcp. Furthermore, due to the rise in the Omicron variant, we might see decline in the construction activities across the North American region. This would lead to lower demand for the company’s products. The stock of TBL corrected ~13% in the last nine months.  Hence, considering the aforesaid fact, we give a ‘Sell’ rating on the stock of TBL at the closing price of CAD 2.63 on January 27, 2022.

One-Year Technical Price Chart (as on January 27, 2022). Analysis by Kalkine Group

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