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INTRO

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Between friends, family, and associates, you could say that I know a fairly large number of people. And like most anyone, they all love the same thing: low prices. So, that got me thinking some time ago. Is there a company that sells affordable products, with a solid business model and operating history? And I found one back in 2015 after reflecting upon several trips to Canada.

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Let’s look at a new company today, one that has proven an excellent investment for its investors and may prove to be similarly attractive as an investment for years to come.

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This one in particular has experienced steady upside, with appreciation in its stock of nearly +200% in just the last 5 years and +1,600% since its IPO in 2009.

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Introducing Dollarama $DLMAF

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Dollarama is a Canadian chain of discount stores that offers a wide range of everyday consumer products at low prices. The sales mix consists of 44% Consumables, 41% General Merchandise and 15% Seasonal Items, and the company has been strategically expanding, consistently increasing the number of stores in Canada, achieving a CAGR of 5.8% since 2013.

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They've also established a strong market presence in Latin America, with operations in El Salvador, Guatemala, Colombia, and Peru, via it's Dollarcity affiliate. Between their unbeatable prices, convenience, and smart business strategies, it's no wonder Dollarama has become a hit. Store count and comparable store sales increased every single year throughout the past decade, resulting in 10.5% CAGR top-line (revenue) growth.

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Just look at their revenue growth visualized. My Canadian readers are smiling right now.

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At first glance, it could appear as an average retail business since it is a dollar store after all. But, it possesses some particular characteristics make it unique and a highly profitable business model: higher operating margins than other retailing segments, strong bargaining power with suppliers, and strong returns on invested capital.

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Before we make any hasty investments though…

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Can Dollarama Survive?

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If you follow my work, you probably know I prefer diversification to cost efficiency. And there is a simple reason behind that: longevity.

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Businesses that have a moat around them will likely survive the test of time. And businesses that are in constant battles over prices, will slowly die. Dollarama is likely to prove resilient in the long-term because of it's excellent supply-chain bargaining power which directly translates to pricing power.

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So how did Dollarama manage to survive? It’s simple. They built a strong brand. Dollarama has a strong brand reputation for providing value to customers. The dynamic mix that makes up its competitive advantage stems from supply-chain power, customer loyalty, and its strong brand, and it's likely to endure the test of time since the company doesn't have to regularly make large capital outlays to maintain its advantage. Read more here on identifying competitive advantage in businesses.

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It’s similar to Costco in the USA in many respects. However, Dollarama does not have a membership program like Costco. Instead, it operates as a retail chain that offers low-priced products to all customers without requiring a membership fee. Maybe in the future…

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Now, to the big question.

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Buy Or Sell?

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If I was bold enough, I’d simply give you an answer. But that’s not my style. I aim to teach you to think with your investor hat on given the tools and insights we've provided. Leverage the detailed information available through investment resources and come to a sound conclusion for yourself.

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So, here is a list of things you need to check.

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10 Questions To Ask Yourself Before Buying Dollarama

1.    What is Dollarama's current financial health and performance?

2.    How has Dollarama's stock price performed historically, and what are analysts forecasting for its future performance? Taking a look at the long-term chart of Dollarama's historical stock performance below, we can see a clear upward trend and a strong ROI provided to investors.

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3.    What are Dollarama's growth prospects, including expansion plans and market opportunities?

4.    What are the key risks associated with investing in Dollarama, such as competition, economic factors, or regulatory challenges?

5.    How does Dollarama's business model and competitive advantage compare to other retail companies?

6.    What is Dollarama's dividend and buyback policy?

7.    How does Dollarama's valuation metrics, such as price-to-earnings ratio and price-to-sales ratio, compare to industry peers?

8.    What is Dollarama's strategy for managing supply chain costs and inventory levels?

9.    How does Dollarama plan to adapt to changing consumer preferences and market trends?

10.  What are analysts and institutional investors saying about Dollarama, and what are their recommendations regarding its stock?

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Key financial metrics with respect to not only revenue but also operating profit and net earnings have historically trended quite favorably. As they continue to expand the current business model into new store locations and geographic areas, one might expect the same upward trends to continue. But, of course, a deeper diver is necessary.

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As reflected in Tykr, we can gain more confidence on the surface based on a solid score, a high ROIC with a 5-year average of 17.5%, a decent overall assessment with a margin of safety, and a high Average 4M rating from the investing community.

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It's also leveraging assets well, as reflected in a consistently strong ROA with a 5-year average of 15.5%. Again, more analysis should be conducted before drawing any conclusions or making any investment decisions.

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Another aspect working in its favor as a strong sign is the fact that Dollarama is still run by the founding family. The CEO also holds over 500x its base salary in Dollarama shares, reflecting shareholder alignment and a vested interest in seeing the stock perform well long-term.

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Conclusion

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I hope I put a new stock on your radar today. Who knows, maybe it will turn out great for you as an investment. It's potentially undervalued currently, despite all of the upward movement in the stock's price.

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Dollarama clearly exists as a strong business model with superior returns, and it's unlikely to be disrupted by new technologies or changes in consumer behavior. It stands upon a long, proven track record of superior capital allocation and business expansion.

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And that business expansion persists. It's pushing a seemingly sound long-term strategic initiative already in place with great growth prospects.  Look at this in total through a long-term lens and remember that time in the market can work in your favor.

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Disclosure/Disclaimer

As a Tykr affiliate, Raising InvestorIQ earns from qualifying purchases. As a Seeking Alpha affiliate, Raising InvestorIQ earns from qualifying purchases.

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Information provided on this site is based on my own personal experience, research, and analysis, and it is not to be construed as professional advice. Please conduct your own research before making any investment decisions.  I am not a professional financial advisor, stockbroker, or planner, nor am I a CPA or a CFP. The contents of this site and the resources provided are for informational and entertainment purposes only and do not constitute financial, accounting, or legal advice. The author is not liable for any losses or damages related to actions or failure to act related to the content on this website.

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