DLTR

Jim et al -

I was fortunate to build a modest position in DLTR last summer, and sold it off over the course of this year at a nice profit. Its one of the many reasons Im thankful for Jim’s contributions to these boards.

As folks you may have noticed, DLTR has experienced several price declines this year - in Jan, May and now August, with the drops in May and August being particularly steep. Year high was ~174 reached in April and then again in July. Price down ~20% in past month, ~7% in last 5 days. 22% from peak.

Although a sharp decline like this recent one has made me take notice, it looks like DLTRs current PE is more or less at the 5 year average (per seeking alpha), and Im not able to find other metics (Price/sales, EV/sales) that make it look particularly cheap with the exception of non-GAAP PEG, which is apparently 80% lower than avergage (1.1 vs 2), perhaps reflecting the recent acceleration in growth

Does anyone feel tempted to start (re)building a position here? As Jim has noted, DLTR and to a lesser extent DG have fairly regular pendulum swings in terms of price. Personally, I dont see it heading back down to the 80s like last year, but I suspect it could get somewhat cheaper from here. I have held it at various times in the past, and think I’d like to buy again and hold for a long time. Can someone help suggest a price target? I dont like over-paying :slight_smile:

thanks

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II have been out for a bit since a price spike a while back, so I haven’t really refreshed my analysis.
It’s a bit hard to value because the Family Dollar acquisition messed up so many things for so long.

If you want to iron out variation in profits due to oscillating net margins, here’s one notion.
One of the assumptions for a basic valuation I did a while back goes like this:
Assume cyclically adjusted net margins prior to that acquisition were 7.5%, and assume 5.2% since then.
Using that rule of thumb, you can create an “adjusted P/S” further back into the past by scaling the older P/S figures by the ratio 7.5/5.2.

With the price and sales history, you can guild a table of average P/S through time,
and compare that to the current valuation level to get another idea of whether it’s cheaper or more expensive than usual.

Obviously worth doing the same thing with earnings, but you kind of have to ignore the pain period after the acquisition.

Jim

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Both May and Aug falls are after earnings release and guidance disappointed, once again.

They seem to be making very slow progress on fixing Family Dollar stores they bought. There was even talk of them spinning off or selling the FDO stores.

DLTR is similar to another stock I own. Stock price rises between earnings release on misplaced optimism that they will fix their current problems and go back to being the great company they once were, only to crater after earnings release reality punches you in the face.

It is better to own the best in class DG and keep buying on dips. You would have done much better than waiting on DLTR to fix itself.

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Thanks to both of your for sharing your thoughts.

Let me sharpen my pencil, metaphorically, and see if I can come up with a better informed price target.

And re DLTR vs DG - I have my eye on both. Would be happy for DG to revisit lows.

As a matter of fact, despite its high PE, I started a small position in Dolarama about 9 months ago. The Canadian version of DG/DLTR. I keep waiting for a good dip, but tts been virtually straight up since then.

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As a matter of fact, despite its high PE, I started a small position in Dolarama about 9 months ago.
The Canadian version of DG/DLTR. I keep waiting for a good dip, but tts been virtually straight up since then.

My situation is similar, except I’m still waiting.
Dang.

The biggest obvious difference is that Dollarama runs with a fair bit of debt.
A hangover from their private equity ownership era.

I do have a position in a tangentially related business, ATD.TO, which can’t be named.
Convenience stores, with and without attached gas stations. More international.
Also Canadian listing, also rarely on sale.

Jim

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