Dollar stores are great businesses. Even though they operate in the retail sector, they manage to do well. I assume that it's because people want to feel the cheap stuff they buy with their hands. Also, when you buy for 5 or 10$ of cheap stuff, do you really want to search on the Internet and probably pay for a shipping that will be more expensive than the stuff you buy?
There may be other reasons why dollar stores continue to do well. But I don't think that things will change in the short and even medium term. So, it may be a good idea to invest in that kind of stock. I'll compare the four names I know the best:
Dollarama, Dollar General, Dollar Tree and Five Below.
Dollarama
Stock performance over the last 5 years: 85%
FWD PE: 22
Annual EPS growth last 5 years: 20%
Estimated EPS growth next 5 years: 14%
Debt level: Medium
ROE: 784 (!)
Profit margin: 14%
Dollar General
Stock performance over the last 5 years: 133%
FWD PE: 19
Annual EPS growth last 5 years: 14%
Estimated EPS growth next 5 years: 8%
Debt level: Medium
ROE: 40
Profit margin: 8%
Dollar Tree
Stock performance over the last 5 years: 12%
FWD PE: 15
Annual EPS growth last 5 years: 14%
Estimated EPS growth next 5 years: 9%
Debt level: Medium-High
ROE: 21
Profit margin: 6%
Five Below
Stock performance over the last 5 years: 353%
FWD PE: 34
Annual EPS growth last 5 years: 40%
Estimated EPS growth next 5 years: 33%
Debt level: Medium-High
ROE: 28
Profit margin: 9%
I like all of them but I'm more neutral towards Dollar Tree which still struggle from the Family Dollar acquisition, many years after it happened. That's probably why their FWD PE is substantially lower than the others.
If I had to make a choice among these four, I'd probably buy Five Below and Dollarama because they have the best margins and the best estimated growth. Also, they operate in different locations, so you have a global exposure to North America with both of them.
The actual geographic footprint is an aspect I look when figuring out the growth potential of a dollar store company.
RépondreSupprimerDollorama has stores almost everywhere in Canada and does not have stores in USA. It will be difficult to compete there with other Dollar stores company should Dollorama wants to make an expansion in the USA. However, there is some growth potential in South America with Dollar City, a company they own at 50%.
Dollar General is a great company but there is a DG store in almost everywhere in the USA. The geographic footprint is already large, not much room for substantial growth.
Five Below is still opening stores at a good rate and still have room to grow. The valuation of this stock is highe, though
Dollarama was the first real stock I ever bought. My amateur analysis: Every time I go in there I end up spending more than I planned to, and I'm cheap.
RépondreSupprimerHope you're doing well, Mr P.