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Dollarama Inc. (TSX:DOL) is one of Canada’s top retail chains, particularly because of the large variety of discounted goods the company offers its customers.
The enterprise, which is to have over 1,360 stores across the country, saw some periods of decline in its stock performance amid the pandemic as lockdowns affected its operations. Even as vaccine rollout catches pace in Canada, uncertainty looms large with the delta variant outbreaks seen in some regions.
The dollar store chain, however, has showed some growth recently. To understand its performance better, let’s dive in to check out the Montreal-based firm’s stock and financial health.
Source: Pixabay
Is Dollarama Inc. (TSX:DOL) a good investment?
Investors with different objectives pick their respective metrics to classify a stock as a good or bad investment. While investors may consider a technical analysis of the stock to gauge short-term performance, long term gains are indicated through a number of factors other than technical analysis.
Let’s look at some of these indicators to understand how the retail stock fares as a long-term investment.
Stock performance: The consumer stock posted a growth of over 25 per cent in the last one year even as the company faced headwinds in the form of lockdown restrictions in Canada. It outperformed the benchmark TSE 300 Composite Index, which declined 3.1 per cent in the same period, and the sectoral S&P/TSX General Merchandise Stores (sub industry) index, which fell 8.8 per cent.
Dollarama’s price-to-earnings (P/E) ratio stands at 29.80, while its earnings per share (EPS) is C$ 1.91.
It holds a price-to-cash flow ratio (P/CF) ratio of 21.20, and a return on assets of 14.95 per cent.
Dividend: Dividend is a deal-breaker for many long-term investors as they consider their equity investment as a source of fixed income. Therefore, a company sharing its profits with stakeholders at a fixed rate with continued growth is often preferred.
Dollarama pays a quarterly dividend of C$ 0.05 apiece, which will be payable on August 6, 2021. Its dividend yield stands at 0.351 per cent, as per TMX.
Dollarama dividend grew at rate of 7.88 per cent over the last five years, while it improved at a rate of 5.93 per cent in the last three years.
Return On Equity: Return on equity (ROE) highlights the profitability of the company as against its current value of stakeholders’ equity.
Dollarama is ranked among the top ROE performers on the TSX, with that of 786.55 per cent.
Financial performance: Dollarama’s sales jumped 13 per cent year-over-year (YoY) to C$ 954.2 million in the quarter ending May 2, 2021, while its comparable store sales were 5.8 per cent higher YoY.
It reported an operating income of C$ 176.8 million, about 18 per cent higher YoY, in Q1 FY21. It also added 12 net new stores in the first fiscal quarter as against the inauguration of 10 net new stores in the corresponding quarter last year.
However, the company faced pandemic related headwinds during the first fiscal quarter as restrictions were imposed by provincial governments following the third wave of COVID-19 infections in the country. This impacted shopping patterns as well as its Q1 2021 financials, the management of Dollarama said.
Dollarama’s performance weakened in terms of its available cash flow as the figure dwindled about 89 per cent quarter-over-quarter (QoQ) in Q1 FY21.
It also expects some impact on sales in the second fiscal quarter ending August 1, 2021, as the Ontario provincial government imposed restrictions on sales of non-discretionary until June 11, 2021.
The above constitutes a preliminary view and any interest in stocks should be evaluated further from investment point of view.
