Dollarama Inc.

Sound bite for Twitter and StockTwits is: Awful, awful, and awful. The stock price is very expensive, BVPS dropping like a stone and high debt ratios with Debt/Equity Ratio an astounding 7.27. I am really disappointed. I looked this stock because I had been hearing great things about it. It is a real disappointment. See my spreadsheet on Dollarama Inc.

I do not own this stock of Dollarama Inc. (TSX-DOL, OTC-DLMAF). I belong to an investment club and this was a stock I volunteered to look at. I had, of course, heard of this stock before and people have mentioned that it is doing very well for shareholders. I would not consider buying this stock while the dividends are below 1%.

Note that the financial year end is February 1 or thereabouts each year. So the 2014 financial year ends February 1, 2015 and the 2015 financial year ends January 31, 2016.

There is only 7 years of data on this company that went public in 2009. They started the company in 1992. Dividends have been paid since 2012. However, since the dividends have never reached 1% can we really call it a dividend company? The current dividend is 0.41% based on dividends of $0.40 and a stock price of $98.61. Dividend increases are good with them at 18.1% per year over the past 4 years. The last dividend increase was in this year and it was for 11.1%.

The Dividend Payout Ratios are low. The DPR for 2015 for EPS was 11.7% and the 5 year median is 14.2%. The DPR for CFPS for 2015 was 9% and the 5 year median is 11%.

An interesting note is that for people who bought stock 5 years prior to 2015 are receiving a yield on their original purchase price of 2.8% and those that bought the stock 5 years prior to this present have a yield on their original purchase of 2.1%. This is caused by good dividend increases. Also the stock price has risen sharply.

The total return over the past 5 and 8 years to date (11 November 2016) is at 35.75% and 34.59% per year. The portion of this return attributed to dividends over the past 5 and 8 years is at 0.76% and 0.56% per year. The portion of this return attributed to capital gains over the past 5 and 8 years is at 34.99% and 34.03% per year. This is quite a return for a retail stock.

The total return over the past 5 and 7 years to the end of their financial year of February 2015 is at 40.17% and 34.92% per year. The portion of this return attributed to dividends over the past 5 and 8 years is at 0.88% and 0.56% per year. The portion of this return attributed to capital gains over the past 5 and 8 years is at 39.29% and 34.36% per year.

There total return far higher than the growth in Revenue and Earnings. The Revenue per Share has grown at 17.35 and 7.8% per year over the past 5 and 7 years. The EPS has grown at around 27% and 31.09% per year over the past 5 and 6 years. The Cash Flow per Share has grown 37.1% and 14.7%. The Cash Flow growth over the past 5 year is quite high.

Another wrinkle is that because outstanding shares are declining over the past 5 years, it would be best to look at Net Income increase over the past 5 years rather than EPS increase. Over the past 5 year Net Income has increased by 27% per year.

The Liquidity Ratio is generally quite good with the 2015 ratio at 2.72 and the 5 year median at 2.78. However the Liquidity Ratio for the second quarter is low at 1.22. This low ratio is caused by the current portion of their long term debt. The Debt Ratios vary a lot. The ratio for 2015 is 1.35. It has a 5 year median of 2.23. The Debt Ratio for the second quarter is just 1.16.

The Leverage and Debt/Equity Ratios are currently very high for a consumer discretionary stock. The ratios for 2015 are 3.89 and 2.89. In the second quarter they are 7.27 and 6.27 and these are extremely high. The increase is due to the fact that Book Value and Book Value per Share has been dropping rapidly lately. BVPS is down 33% in 2015 and then another 44.6% in the second quarter of 2016. This is a bad development.

The biggest reason for the drop in BVPS is the repurchase of outstanding shares. Outstanding shares are down by 3.7% per year over the past 5 years. They are down by 5.8% in 2015 and so far in 2016, outstanding shares are down by another 2.8%.

Book Value is theoretically the breakup value of the company. This is up by 18% per year over the past 10 years, but down by 5.3% per year over the past 5 years to the end of Financial year of February 2016. It is down by 19% per year over the past 5 years to date. I do not like this development either.

The ROE is very high. The ROE for the 2015 financial year is 82.5%. The ROE for the 12 months to the end of the second quarter is 164%. Very high ROE is not a good thing. There is an article that talks about difference between Dell and Apple in Forbes. This article is from 2012 but relevant to this discussion. It talks how Dell's ROE is better than Apple. However, it is only better because Dell was buying back shares and increasing its debt. This is what Dollarama is doing. The problem shows up in the very high the Leverage and Debt/Equity Ratios and rapidly declining BVPS. When the ROE is very high, you need to look below the surface.

The 5 year low, median and high median Price/Earnings per Share Ratios are 16.79, 21.37 and 25.94. The corresponding 7 year ratios are 15.10, 18.65 and 22.20. These are high for a consumer discretionary stock. The current P/E Ratio is 28.58 based on a stock price of $98.61 and 2016 EPS estimate of $3.45. This stock price testing suggests that the stock price is relatively expensive.

I get a Graham Price of $12.82. The 7 year low, median and high median Price/Graham Price Ratios are 1.53, 1.89 and 2.25. These are very high for a consumer discretionary stock. The current P/GP Ratio is astoundingly high at 7.69 based on a stock price of $98.61. This stock price testing suggests that the stock price is relatively expensive.

The 7 year Price/Book Value per Share Ratio is 3.66. The current P/B Ratio is 6.27 a value some 1172% higher. The current P/B Ratio is based on a BVPS of $2.12 and a stock price of $98.61. This stock price testing suggests that the stock price is relatively expensive.

The median Dividend Yield is 0.66%. The current Dividend Yield is 0.41% a values some 39% lower. The current Dividend Yield is based on dividends of $0.40 and a stock price of $98.61. This stock price testing suggests that the stock price is relatively expensive.

Will Ashworth at Motley Fool gives one good reason not to own this stock and that is valuation. He thinks the P/E Ratio is much too high for this sort of company. I agree with him. See what analysts are saying at Stock Chase. Here is what some other analysts' are saying on Money Making Articles. Damon van der Linde talks about this company doing a large private offering in senior unsecured notes on Financial Post.

The analysts' recommendations are all over the place. I am surprise there is no sell recommendations as there is every other one of Strong Buy, Buy, Hold and Underperform. Most of the recommendations are a Buy, so the consensus recommendation is a Buy. The 12 month stock price is $109.00. This implies a total return of $10.94% with 10.54% from capital gains and 0.41% from dividends. However, the price seems to be currently dropping as it was $98.61 when I last looked on Friday, but apparently it closed at $95.70. Not lower enough to make any of my valuations invalid.

I will have only one entry for this stock as I must do on some stock because I cover too many stocks to do double entries on all that I follow.

The last stock I wrote about was about was Encana Corp. (TSX-ECA, NYSE-ECA)... learn more . The next stock I will write about will be Keyera Corp. (TSX-KEY, OTC-KEYUF)... learn more on Wednesday, November 16, 2016 around 5 pm. Today on my other blog I will write about Inequality... learn more on Tuesday, November 15, 2016 around 5 pm.

Dollarama is a major player in the value retail industry. Headquartered in Montreal, Dollarama owns and operates over 1,000 stores across all ten Canadian provinces. All stores are corporately owned and operated. Its web site is here Dollarama Inc.

This blog is meant for educational purposes only, and is not to provide investment advice. Before making any investment decision, you should always do your own research or consult an investment professional. I do research for my own edification and I am willing to share. I write what I think and I may or may not be correct.

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