Is it a good company at a reasonable price? I would not buy this stock. First it really is not a dividend stock because the dividend yield is so low. I do not buy stocks which have a dividend yield less than 1%. Also, the book value is negative. I do not buy companies with a negative book value. I realize that people have made lots of money on this stock and some people I know think it is great. However, this is not the sort of stock I like to buy for the long term.
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 that the Book Value has turned negative again. They spend the cash they had and their cash flow to pay off debt and to repurchase shares. They spend $1,275M on buying back shares. This means that if the company can go into bankruptcy and have no value. They do not have enough money to pay all their bills. It is interesting that the Chief Financial Officer (CFO) has no shares in this company. Other insiders do.
They are supposed to be in Consumer stock, not a Finance stock. They may not get into financial trouble, but it is a very real risk.
The site Alpha Spread that does relative valuations says that the stock is overpriced. It gets a relative price of $53.42 compared to the current market price of $80.84 CDN$. They say it is overpriced by 34%. See Alpha Spread. The financial statements are dated around February 1 each year. See below that Simply Wall Street says the stock’s fair value is $117.20 and it is undervalued. The Financial Statement I am working on is dated January 30, 2022.
If you had invested in this company in December 2011, for $1,001.25 you would have bought 135 shares at $7.42 per share. In December 2021, after 10 years you would have received $199.57 in dividends. The stock would be worth $8,546.85. Your total return would have been $8,746.42.
| Cost | Tot. Cost | Shares | Years | Dividends | Stock Val | Tot Ret |
|---|---|---|---|---|---|---|
| $7.42 | $1,001.25 | 135 | 10 | $199.57 | $8,546.85 | $8,746.42 |
The dividend yields are low with dividend growth moderate. The current dividend yield is low (below 2%) at 0.27%. The 5, 10 and historical dividend yields are also low at 0.37%, 0.43% and 0.43%. It is hard to really classify this as a dividend paying stock when dividends are so low. The dividend growth is moderate (8% to 14% ranges) and 8.8% per year for the past 5 years. The last dividend increase was in 2022 and it was for 9.9%.
The Dividend Payout Ratios (DPR) are good. The DPR for EPS for 2022 is 9% with 5 year coverage at 11%. The DPR for Cash Flow per Share (CFPS) for 2022 is 6% with 5 year coverage at 8%. The DPR for Free Cash Flow (FCF) for 2022 is 7% with 5 year coverage at 8%.
Debt Ratios are bad because the company has a negative Book Value. The Long Term Debt/Market Cap Ratio is 0.08. This is good and low. The Liquidity Ratio is 0.79. If you add in Cash Flow after dividends it is 1.89. This is fine. The Debt Ratio is 0.98 and this is not fine. This means that the break up value of the company less than zero.
The Total Return per year is shown below for years of 5 to 13 to the end of 2021. 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. |
|---|---|---|---|---|---|
| 2016 | 5 | 8.77% | 14.53% | 14.06% | 0.46% |
| 2011 | 10 | 12.68% | 24.66% | 23.92% | 0.74% |
| 2008 | 13 | 26.64% | 25.94% | 0.70% |
The 5-year low, median, and high median Price/Earnings per Share Ratios are 19.59, 25.31, and 30.39. The corresponding 10 year ratios are 19.28, 24.65 and 29.69. The corresponding historical ratios are 18.58, 23.63 and 28.13. The current P/E Ratio is 30.54 based on a stock price of $81.84 and EPS estimate for 2023 of $2.68. The current ratio is above the high ratio of the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
I cannot calculate a Graham Price as the stock has a negative Book Value. I cannot do the Price/Book Value per Share Ratio test because the stock has a negative Book Value.
I get a 10-year median Price/Cash Flow per Share Ratio of 18.47. The current P/CF Ratio is 22.06 based on Cash Flow per Share estimate of $3.71, Cash Flow of $1,086M and a stock price of $ 81.84. The current ratio is 19% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively reasonable but above the median and very close to expensive.
I get an historical median dividend yield of 0.43%. The current dividend yield is 0.27% based on dividends of $0.2162 and a stock price of $81.84. The current dividend yield is 37% below the historical median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
I get a 10 year median dividend yield of 0.42%. The current dividend yield is 0.27% based on dividends of $0.2162 and a stock price of $81.84. The current dividend yield is 36% below the 10 year median dividend yield. This stock price testing suggests that the stock price is relatively expensive.
The 10-year median Price/Sales (Revenue) Ratio is 3.51. The current P/S Ratio is 4.94 based on Revenue for 2023 of $4,855M, Revenue per Share of $16.58 and a stock price of $81.84. The current P/S Ratio is 40% above the 10 year median ratio. This stock price testing suggests that the stock price is relatively expensive.
Results of stock price testing is that the stock price is probably expensive. The dividend yield tests show this and it is confirmed by the Price/Sales Ratio test. Other tests that I can do show that the stock is on the expensive side. It is not good that I cannot do all the testing.
When I look at analysts’ recommendations, I find Strong Buy (2), Buy (7), Hold (4). The consensus would be a Buy. The 12 month stock price consensus is $87.35. This implies a total return of $7.00% with 6.73% from capital gains and 0.27% from dividends based on a current stock price of $84.84.
Most recommendations on Stock Chase is a Buy or Hold, but there is one Sell. Stock Chase gives this stock 4 stars out of 5. It is not on the Money Sense list. Amy Legate-Wolfe on Motley thinks this is a trustworthy stock to buy. Demetris Afxentiou on Motley Fool thinks this is a good stock to have when markets are volatile. The company put out a Press Release on Newswire about their fourth quarter results. The company put out a Press Release on their second quarter results on Newswire.
Simply Wall Street on Yahoo Finance says the fair value of this stock is $117.20 CDN$. Simply Wall Street gives this stock 3 warning signs of negative shareholders’ equity; has a high level of debt; and significant insider selling over the past 3 months.
Dollarama Inc is a Canada-based company principally engaged in operating discount retail stores. The company provides a broad range of everyday consumer products, general merchandise, and seasonal items, with merchandise at low fixed price points. The company's stores are throughout Canada. 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 Keyera Corp (TSX-KEY, OTC-KEYUF) ... learn more on Monday, around 5 pm.
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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