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.
When I was updating my spreadsheet, I noticed the that Graham Price is very high. The median Graham Price for this stock in 2020 is 7.91. Here is information on this price at Investopedia. Basically, a stock is cheap if this Graham Price is under 1.00. The upper level for a reasonable stock price is 1.50. This company has a financial year ending at February 1 every year, so this year the financial year is ending February 1, 2021
The dividend yields are low with dividend growth moderate. The current dividend yield is low (below 2%) at 0.35%. The 5 and 9 year median dividend yields are also low at 0.39% and 0.44%. The dividend increases have been moderate (8% to 14% ranges) at 8.57% per year over the past 5 years. The last dividend increase was in 2021 and it was for 7%. There was also another increase in 2021 at 6.8%. There were no increases in 2020.
The Dividend Payout Ratios (DPR) are good. The DPR for EPS for 2021 was 10% with 5 year coverage at 11%. The DPR for CFPS for 2021 was 7% with 5 year coverage at 8%. The DPR for Free Cash Flow for 2021 is 8%, with 5 year coverage at 10%.
Debt Ratios need improving. The Long Term Debt/Market Cap Ratio for 2021 is 0.07 and it is low and good. The Liquidity Ratio for 2021 is very low 0.83. It means that current assets cannot cover current liabilities. If you add in cash flow after dividends it is 1.46 and this is still low. The Debt Ratio is 1.09 and this is very low. I like the last two ratios to be at 1.50 or above. The Leverage and Debt/Equity Ratios are very high at 12.61 and 11.61. I like these to be below 3.00 and 2.00. Believe it or not the debt ratios are better than they have been since 2017 even though they are pathetic.
The Total Return per year is shown below for years of 5 to 12 to the end of 2020. Under the Capital Gain column is the portion of the Total Return attributable to capital gains. Under the Dividend column is the portion of the Total Return attributable to dividends. See chart below.
| From | Years | Div. Gth | Tot Ret | Cap Gain | Div. |
|---|---|---|---|---|---|
| 2015 | 5 | 8.57% | 14.77% | 14.25% | 0.52% |
| 2010 | 10 | 12.70% | 27.76% | 26.87% | 0.89% |
| 2008 | 12 | 26.99% | 26.27% | 0.71% |
The 5 year low, median, and high median Price/Earnings per Share Ratios are 19.43, 24.99 and 30.39. The corresponding 10 year ratios are 18.85, 23.97 and 28.66. The corresponding historical ratios are 18.55, 23.36 and 27.87. The current P/E Ratio is 26.94 based on a stock price of $56.84 and EPS estimate for 2022 of $2.11. The current ratio is between the median and high ratios of the 10 year median ratios. This stock price testing suggests that the stock price is relatively reasonable but above the median. However, the P/E Ratio is rather high.
I get a Graham Price of $4.58. The 10 year low, median, and high median Price/Graham Price Ratios are 4.55, 5.80 and 7.05. The current P/GP Ratio is 12.41 based on a stock price of $56.84. The current P/GP Ratio is above the high ratio of the 10 year median ratios. This stock price testing suggests that the stock price is relatively expensive. The P/GP Ratios are very high due to very low book value.
I get a 10 year median Price/Book Value per Share Ratio of 5.13. The current P/B Ratio is 128.67 based on a Book Value of $137M, Book Value per Share of $0.44 and a stock price of $56.84. The current ratio is 2047% above the 10 year median ratio. Problems with the ratios is that they were often negative. You cannot do effective P/B Ratio testing with negative P/B Ratios. In any case, the current P/B Ratio is extremely high.
I get a 10 year median Price/Cash Flow per Share Ratio of 18.47. The current P/CF Ratio is 18.39 based on Cash Flow per Share estimate for 2022 of $3.09, Cash Flow of $958.7M and a stock price of $56.84. The current ratio is 0.4% below the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable and at the median.
I get an historical and 9 year median dividend yield of 0.44%. The dividends have only been paid for 9 years. The current Dividend Yield is 0.35% based on dividends of $0.2012, and a stock price of $56.84. The current dividend yield is 19.6% below the historical and 9 year median dividend yield. This stock price testing suggests that the stock price is relatively reasonable but above the median and almost to the expensive range.
The 10 year median Price/Sales (Revenue) Ratio is 3.44. The current P/S Ratio is 4.07 based on Revenue estimate for 2022 of $4,334M, Revenue per Share of $13.97 and a stock price of $56.84. The current ratio is 18% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median.
Results of stock price testing is that the stock price might be reasonable, but it is on the high side of the reasonable range. Both the Dividend Yield test and P/S Ratio test say this. However, the Graham Ratio is far too high and I cannot do a proper P/B Ratio test because of past negative book values. The P/B Ratio is also quite high.
I looked at the total return over a number of years. For P/S Ratio and P/E Ratio, the lower the ratio the cheaper the stock. For yield, the higher the yield, the cheaper the stock. In the chart below you can see that the beginning P/E Ratios for good returns are lower than today. This is the same with P/S Ratio. Also, the beginning yield was higher than today.
In the following chart the total return for the 5 years to February 1, 2021 is 14.77% per year. The beginning yield was at 0.47%, and the P/E Ratio and the P/S Ratio were at 24.96 and 3.45. Does this chart change my opinion of the stock price? No.
| # Years | Total Ret | Beg P/E | Beg P/S | Beg Yield |
|---|---|---|---|---|
| 5 | 14.77% | 24.96 | 3.45 | 0.47% |
| 10 | 27.76% | 18.43 | 1.48 | |
| 12 | 26.99% | -52.61 | 0.74 | |
| Current | 26.94 | 4.07 | 0.35% |
Is it a good company at a reasonable price? The Price might be within the reasonableness range, but I do not like the P/GP Ratio being so high. I do not like the high P/B Ratio test and the fact that I cannot do a proper P/B Ratio test. Also, I do not like the Debt Ratios. Companies can easily and quickly get into trouble when debt is a problem. Also, this company is just sort of a Dividend Growth Stock. Why I say that is because the dividend yield is very low. If they continue to increase at the current 5 year rate of 8.57% per year, in 15 years, you will have a dividend yield of just 1.22%. In 20 years’, yield might only reach 1.83%.
When I look at analysts’ recommendations, I find Strong Buy (3), Buy (6) and Hold (5). The consensus would be a Buy. The 12 month stock price consensus is $62.55. This implies a total return of $10.40% with 10.05% from capital gains and 0.35% from dividends.
Analysts on Stock Chase like this stock and mostly suggest it is a buy. Amy Legate-Wolfe on Motley Fool says the stock is cheap and it is time to buy it. The executive summary on Simply Wall Street gives the stock 3 stars out of 5 and mentions one risk. This is the first article to mention risk for their high level of debt. A writer on Simply Wall Street says it is trading at a fair value but has a robust future. A writer on Simply Wall Street says analysts expect this company to grow faster than its wider industry.
Dollarama Inc is a Canada-based company principally engaged in operating discount retail stores. The company's stores are throughout Canada, generally located in convenient locations, such as metropolitan areas, midsize cities, and small towns. All the stores are owned and operated by the company. Its web site is here Dollarama Inc.
The last stock I wrote about was about was Ovintiv Inc (TSX-OVV, NYSE-OVV) ... learn more. The next stock I will write about will be Titanium Transportation Group Inc (TSX-TRR, OTC-PVVTF) ... learn more on Wednesday, October 27, 2021 around 5 pm. Tomorrow on my other blog I will write about TECSYS Inc.... learn more on Tuesday, October 126, 2021 around 5 pm.
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