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TechnologyDollarama Inc’s (TSX:DOL) Q3 proves that problems from Q2 haven’t gone away

18:32  06 december  2018
18:32  06 december  2018 Source:   fool.com

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Welcome to Dollarama , the leading dollar store operator in Canada. We offer a broad range of quality consumer products and general merchandise for everyday use

View the basic DOL .TO stock chart on Yahoo Finance. Change the date range, chart type and compare DOLLARAMA INC against other companies. DOL .TO - Dollarama Inc . Toronto - Toronto Delayed Price.

Dollarama Inc’s (TSX:DOL) Q3 proves that problems from Q2 haven’t gone away© Provided by Fool Knowledge concept with quote written on wooden blocks

Dollarama Inc (TSX:DOL) released its quarterly earnings today. The company’s sales were up over 6% year over year and earnings rose by a little more than 2%. However, let’s take a deeper look into the financials to see whether you should consider buying Dollarama today.

Same-stores sales continue to show more modest growth

In Q2, investors will recall there were many alarm bells going off when the company produced soft growth numbers among its existing stores. The stock would go on to lose more than 20% of its value due to concerns that its growth rate may have peaked.

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Should you invest in Dollarama Inc . ( TSX : DOL )? Mediocre balance sheet with acceptable track Dollarama . TSX : DOL . Snowflake Description. Mediocre balance sheet with acceptable track record. If you went into a grocery store and all the bananas were on sale at half price, they could be

Dollarama Inc ( TSX : DOL ) shares crashed more than 17% on Thursday, as the company' s earnings underwhelmed investors.

Well, in Q3, the company didn’t do a whole lot better as same-store sales were up 3.1% and only offered a minor improvement from the 2.6% growth that the company achieved last quarter.

While investors might be wondering why these numbers would be looked down upon, it’s because Dollarama is primarily a growth stock and one that has traded at high multiples due to expectations that it will continue to grow. Without much growth, there’s little reason to buy the stock at more than 20 times its earnings.

Last year, the company’s comparable sales growth was 4.6%.

Expansion continues and remains on track

For the fiscal year, Dollarama expected to open between 60 to 70 new stores and in its release, it still believes it will fall within that range. So far, Dollarama has opened 43 stores during its current fiscal year and this quarter opened up 14 compared to 10 last year.

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Dollarama Inc . is a Canadian dollar store retail chain headquartered in Montreal. Since 2009, it has been Canada' s largest retailer of items for four dollars or less.

Dollarama ( TSX : DOL ) released its second-quarter results on Thursday, and while it continued to grow sales, it just wasn’ t as impressive as it was in Sales growth starting to slow down While Dollarama did have a good quarter, there are clear signs that things are starting to slow down for the dollar store

Good cost control helps produce another good profit

While all the news will be surrounding Dollarama’s sales growth and whether it has peaked or not, costs are important as well, and the company has been able to keep them under control as it has maintained an operating income that’s 22.6% of sales, which is very close to the 23.3% it achieved a year ago.

Ultimately, anything over 20% is a good number and the company should be recognized for a good performance in managing and controlling its expenses. Rising interest rates and hourly wages have likely put a lot of pressure on the company this year.

Investors not pleased with the results

In early trading on Thursday, Dollarama’s stock was down more than 15% as the results likely reaffirmed what Q2 signaled: the dollar store had reached a peak in terms of growth.

Even though Dollarama had a good quarter and continued to show growth, that’s sometimes just not enough, especially for a stock that offers not much else for investors.

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Dollarama Inc . ( TSX : DOL ) released its fourth-quarter results on Thursday, which again showed impressive growth. Sales were up 10% from last year, and The inevitable problem is that Dollarama will eventually come to a level of saturation where it won’ t be able to keep opening stores at this pace

Does Dollarama Inc ’ s (TSE: DOL ) PE Ratio Signal A Selling Opportunity? Dollarama Inc ( TSX : DOL ) trades with a trailing P/E of 33x, which is higher than Canada's dollar-store chain Dollarama Inc on Thursday reported quarterly revenue and same-store sales that missed Wall-Street estimates, hurt by

Should you consider buying Dollarama?

The ultimate contrarian play right now would be to buy Dollarama, and there are a couple reasons why it might not be a bad idea.

First, the stock has declined so much this year that it might be a tempting value buy as you could get it at a very decent multiple to earnings.

Second, we’re likely to see the country run into headwinds as interest rates continue to rise and as the oil and gas industry struggles, as that could make shopping at a dollar store much more of a necessity for cash-strapped shoppers, which could re-ignite the company’s sales numbers.

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The year 2018 has been difficult for Dollarama ( TSX : DOL ) so far. After reporting a weak first quarter, the discount retailer reported an even weaker second quarter. The market was used to Dollarama reporting better-than-expected quarters. Shares plunged dramatically following disappointing results

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Still, our analysts rate this company a firm SELL.

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Fool contributor David Jagielski has no position in any of the stocks mentioned.

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