dimanche 27 novembre 2016

Dollar Tree (DLTR) and Dollarama (DOL.TO)

Here I go again: taking a crap with my laptop on my knees, writing another masterpiece of financial litterature.

Dollar Tree (DLTR) is one of my oldest holdings. I like that stock because it's very defensive and it's very well managed. However, the price they paid for Family Dollar was high and it changed a lot of things on the balance sheet of the company: The debt has risen a lot and the return on equity has decreased a lot. But there's a lot of potential with the stock and if the managers execute well (no reason to think that they will fail), this stock could perform well in the years ahead.

Even if I like DLTR, I believe that Dollarama (DOL.TO) is a better stock. In fact, DOL is probably the best stock in Canada and one of the best stocks in America right now. The problem is that it's very expensive.

Let's compare DLTR and Dollarama (DOL.TO), taking a look at different metrics.

Forward PE: 20
Actual ROE: 16
ROE last 5 years: 29
Debt: 15 times earnings (high debt)
Annual Sales Growth last 5 years:  21%
Annual EPS Growth last 5 years:  - 4%
Beta: 0,6
Number of shares last 5 years: + 8%

Forward PE: 26
Actual ROE: 84
ROE last 5 years: 33
Debt: 3,7 times earnings (low debt)
Annual Sales Growth last 5 years: 13%
Annual EPS Growth last 5 years: 31%
Beta: -0,32
Number of shares last 5 years: -16%

On most metrics, DOL is more interesting than DLTR. In fact, on every metric except for the forward PE, DOL is an incredible pick. I dare you to find something looking better on the market.

On the other hand, even if it's ROE has declined a lot and it's debt is high, sales growth and EPS growth are beginning to get much better with DLTR as the lasts results showed us. The market seems to believe that DLTR is going on the right direction given the recent rise of the stock. 

I don't understand why DOL has bought back so many shares given the price of the stock. But it looks like it helped the stock to achieve it's amazing performance.

All in all, I believe that, at their actual prices, both stocks are a Hold. But if there was a correction, DOL would be the stock to buy between the two.

11 commentaires:

  1. I love Dollarama so much but never found an entry point. I always say, I should have bought it in Feb 2016 when it was priced at $70-75. $90 is also an attractive entry point. I really cannot wait for a gigantic correction which may never come.

    1. Instead of waiting for a gigantic correction, why don't you wait for a reasonable correction?

    2. Yup. I think I would jump in around $90. It would be nice it goes below $90.

  2. Do you think that Dollarama's primary presence in Canada is more a limitation to sales growth than dollar tree which operates in the states?

    1. No. Dollarama's so great that I'm sure they'll do well even when their canadian expansion will be completed. They'll export their great model somewhere else.

  3. Here's something to consider: What happens when Dollar Tree accelerates their push into Canada? They don't have any stores in Montreal. They have very few in Toronto. There seems to be a number of Dollar Tree stores in Vancouver already. Here's their canadian website:


    Because of my gullible nature, I recently bought more of another high p/e stock (Constellation Software). But nobody is going to open across the street from CSU and steal half their clients. For now, I agree that Dollarama is the greatest success/business/ stock. I just don't know how much damage a big competitor from the States like Dollar Tree will do to them.

    1. On every aspect, Dollarama is more profitable than Dollar Tree.

      Obviously, DLTR being more agressive un Canada would hurt DLTR but I think DOL would stay the dominant player for at least 5 years. Anyway, DLTR has a lot of job to do to integrate Family Dollar.

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  5. Hi, I am a new follower and I found your blog when looking at Novo Nordisk's recent correction, I really like the great content you provide!

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