(B)(N) DOL Dollarama Incorporated

Drama. Dollarama Incorporated reported reduced quarterly earnings to $0.62 per share which was above $0.56 per share last year but still below the analysts average expectation of $0.67 per share according to the Thomson Reuters I/B/E/S (Reuters, June 12, 2013, Dollarama results disappoint, shares drop 4.5 percent).

Courtesy: Dollarama Incorporated

Disappoint? They say? Pity?

We’re not sure who should be disappointed – perhaps just the analysts – but we usually see their disappointment as a “profit-making” party-time wind-fall for us, and then maybe an opportunity to buy the stock back at a lower price, should we choose.

Now That’s Disappointing

Following hard on the heels of their disappointment, the company’s CEO, Mr. Larry Rossy, re-affirmed the continuation of the recently increased dividend of $0.14 per share per quarter for a payout of $40 million this year and a small but economical yield of 0.80% (80 basis points); and continuing the share buy-back program that was started last year with a budget of $157 million and anticipates reeling in about 2.6 million shares or 3.5% of the common share outstanding; and that growth in Ontario and Western Canada remains a priority for the firm.

Because of seasonal and cyclical surprise, disappointment, and occasional joy, our estimate of the downside volatility in the stock price is as much as minus ($5) per share so that we would not be disappointed by any price between the current $70 and $65 to $75.

USCG Station Cape Disappointment, Fort Canby, Washington State

But we can afford a lot more disappointment than $5 per share since we started buying the company for the Perpetual Bond™ at $20 in 2009 – please see Exhibit 1 below, Red Line Stock Price (SP) above the Black Line Risk Price (SF), and for no other reason – and we could also afford to take some of our profits and buy the July put at $70 for $2 today and sell the October call at $74 for $3.25 today, so that for the cost of holding the stock at $70 or more or less until at least October, and a gain (or enhanced dividend) of $1.25 per share today ($2.00 less $3.25), we can just wait around and see if there are any other disappointments during our vacation.

Exhibit 1: (B)(N) DOL Dollarama Incorporated – Risk Price Chart

(B)(N) DOL Dollarama Incorporated

Dollarama Incorporated is an operator of dollar stores in Canada. It offers a range of quality consumer products and general merchandise for everyday use, in addition to seasonal products.

(Please Click on the Chart to make it larger if required.)

The Price of Risk

The calculated Risk Price (SF) is a provably effective estimate of the “price of risk” which is “the least stock price at which the company is likeable” (Goetze 2009) and “likeability” is determined by the demonstrated factors of “risk aversion” – we want to keep our money and obtain a hopeful return above the rate of inflation – and the properties of portfolios of such stocks. Stock prices that are less than the price of risk can be said to be “bargain prices” but with the risk attached that the company might never get a higher price other than that due to ambient volatility or “surprise”; on the other hand, investors who are willing to pay the “full price” above the price of risk, and buy and hold the stock at those prices, must also be confident, and have reason to believe, that the company will produce those values, absent new information.

Please see our Posts, The Price of Risk, August 2012 and The Nash Equilibrium & Its Stock Price, October 2012, for more information on the theory.

To see what else “risk averse” investing can do for us, please see our recent Posts, The Wall Street Put, April 2013, and earlier Posts such as The Dow Transports, March 2013, or The Risk Adjusted Dow, March 2013, or The Canada Pension Bond, February 2013, and for a more colorful description of investment risk and the application of the “price of risk” to mergers & acquisitions, please see our Post, Bystanders & Collateral Damage, April 2013.

Postscript

We are The RiskWerk Company and care not a jot for mutual funds, hedge funds, “alternative investments”, the “risk/reward equation” and every other unprovable artifact of investment lore. We have just one product

The Perpetual Bond™“
Alpha-smart with 100% Capital Safety and 100% Liquidity”
Guaranteed
With No Fees and No Loads on Capital

For more information on RiskWerk, please follow the Tags or Categories attached to this Letter or simply enter Search for additional references to any term that we have used. Related data may be obtained from us for free in a machine readable format by request to RiskWerk@gmail.com.Disclaimer Investing in the bond and stock markets has become a highly regulated and litigious industry but despite that, there remains only one effective rule and that is caveat emptor or “buyer beware”. Nothing that we say should be construed by any person as advice or a recommendation to buy, sell, hold or avoid the common stock or bonds of any public company at any time for any purpose. That is the law and we fully support and respect that law and regulation in every jurisdiction without exception and without qualification to the best of our knowledge and ability. We can only tell you what we do and why we do it or have done it and we know nothing at all about the future or the future of stock prices of any company nor why they are what they are, now. The author retains all copyrights to his works in this blog and on this website. The Perpetual Bond®™ is a registered trademark and patented technology of The RiskWerk Company and RiskWerk Limited (“Company”) . The Canada Pension Bond®™ and The Medina Bond®™ are registered trademarks or trademarks of the Company as are the words and phrases “Alpha-smart”, “100% Capital Safety”, “100% Liquidity”, ”price of risk”, “risk price”, and the symbols “(B)”, “(N)” and N*.