From Cabot Wealth Advisory 9/27/12 Sign up for free Cabot Wealth Advisory e-newsletter
Dollarama (TSX: DOL) trades on the Toronto Stock Exchange only. With headquarters in Montreal, it's the leading dollar store operator in Canada with 735 stores in all 10 provinces. In comparison, the second largest dollar store operator in Canada has only 125 stores. More than 500 of Dollarama's stores are located in Ontario and Quebec.
The company offers a broad range of general merchandise for $3 or less. Offerings include party supplies, seasonal merchandise, household products and cleaning supplies, paper and plastic products, health and beauty care products, food, novelty items and impulse products. All of Dollarama's stores are corporate-owned and provide a consistent shopping experience.
The Canadian dollar store industry remains under-penetrated relative to the U.S. dollar store industry. On a per capita basis, there are 14,000 people per dollar store in the U.S. compared to 30,000 people per dollar store in Canada. Dollarama is opening stores rapidly to fill that dollar store void.
Dollarama's sales increased 14% and EPS jumped 36% for the six months ended 7/31/12. Same-store sales advanced an impressive 7.7%, and sales and earnings growth has been consistent during the last several quarters. The company opened 31 new stores during the past six months.
I forecast Dollarama's sales will increase 14% to $1.95 billion and earnings per share will rise 25% to 3.25 during the next 12 months ending 6/30/13. The price-to-earnings ratio of 19.2 is high, but if the company continues to perform well, I believe the stock can move substantially higher. The dividend was raised earlier this year and now yields 0.7%. The stock is a sleeper that very few investors are following.
The balance sheet is strong with little debt and ample cash. I recommend buying DOL at the current price.
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5805 Royalmount Avenue
Montreal, QC H4P 0A1
|Index Membership: N/A
Industry: Discount, Variety Stores
Full Time Employees: 14,824