Opinions
Bruce Murray
Dollarama Inc.
DOL-T
HOLD
Sep 18, 2018
Stock price when the opinion was issued
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Still adding for new clients. Key has been that it has very little competition, unlike US counterparts. You pay up for that position, at 35x forward PE, but you get 15% earnings growth going forward.
Beneficiary of cumulative effects of inflation and uncertainty in Canadian economy. Recession-resilient business model. Outpaced the TSX since its IPO in 2009.
Wouldn't buy now. Has benefited from the economic uncertainty, and so valuation has come up dramatically. North of 35x PE, so risk that could contract over the long term. Wonderful business, well positioned with price points to capture a larger portion of wallets in tough times.
Last conference call referenced a small impact from sourcing from China, with the hit to margins yet to be seen.
Great numbers yesterday, as well as an all-time high. Still likes it. Canadians continue to downshift spending into more affordable channels. 60% of sales from private labels, which increases margins and differentiates themselves from competitors (not that there are many). International expansion into Dollar City in Latin America is good for long-term growth.
Premium valuation of 41x forward earnings. Sees 15% growth. To add, wait for better pricing opportunity.
In his firm's Canadian dividend growth strategy portfolio. Not a great dividend, though it does grow. Focused more on inorganic growth and share buybacks. Almost AMZN-proof, scale gives them buying power. In Canada, topline is growing close to 10%, margins are improving. Trades at over 40x next year's earnings, so wise to trim.
Dollar stores are favored by the major retail analysts as still having growth opportunity. However, most Canadians see a Dollarama on every corner. They have a dwindling ability to penetrate the Canadian market further through more locations. This company has a big PE and high growth expectations, but its growth ability seems to be slowing. A small miss in this context can have an outsize effect, as appears to have happened to Dollarama this month. He owns a little bit, would not sell his stock at this point, but would not buy more until he sees that the stock has reached its inflection point. He would wait for a couple of quarters, looking at the company’s comments to understand how they now see their growth prospects. Dollarama has some other opportunities in other countries but has not yet shown that these will develop into significant growth.