Yahoo Finance Here's Why We Think Dollarama (TSE:DOL) Is Well Worth Watching
It's common for many investors, especially those who are inexperienced, to buy shares in companies with a good story even if these companies are loss-making. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.' Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.
So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Dollarama (TSE:DOL). While profit isn't the sole metric that should be considered when investing, it's worth recognising businesses that can consistently produce it.
See our latest analysis for Dollarama
Dollarama's Earnings Per Share Are Growing
If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Dollarama managed to grow EPS by 16% per year, over three years. That's a good rate of growth, if it can be sustained.
It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. EBIT margins for Dollarama remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 17% to CA$5.1b. That's a real positive.
In the chart below, you can see how the company has grown earnings and revenue, over time. For finer detail, click on the image.
In investing, as in life, the future matters more than the past. So why not check out this free interactive visualization of Dollarama's forecast profits?
Are Dollarama Insiders Aligned With All Shareholders?
We would not expect to see insiders owning a large percentage of a CA$24b company like Dollarama. But thanks to their investment in the company, it's pleasing to see that there are still incentives to align their actions with the shareholders. Indeed, they have a considerable amount of wealth invested in it, currently valued at CA$476m. Investors will appreciate management having this amount of skin in the game as it shows their commitment to the company's future.
While it's always good to see some strong conviction in the company from insiders through heavy investment, it's also important for shareholders to ask if management compensation policies are reasonable. Our quick analysis into CEO remuneration would seem to indicate they are. For companies with market capitalisations over CA$11b, like Dollarama, the median CEO pay is around CA$12m.
Dollarama's CEO took home a total compensation package worth CA$7.8m in the year leading up to January 2022. That seems pretty reasonable, especially given it's below the median for similar sized companies. CEO remuneration levels are not the most important metric for investors, but when the pay is modest, that does support enhanced alignment between the CEO and the ordinary shareholders. Generally, arguments can be made that reasonable pay levels attest to good decision-making.
Does Dollarama Deserve A Spot On Your Watchlist?
As previously touched on, Dollarama is a growing business, which is encouraging. Earnings growth might be the main attraction for Dollarama, but the fun does not stop there. With company insiders aligning themselves considerably with the company's success and modest CEO compensation, there's no arguments that this is a stock worth looking into. What about risks? Every company has them, and we've spotted 1 warning sign for Dollarama you should know about.
The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.
Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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