This company has been around long before the bear market as well.

This company is not like a dollar store at all, its inventory is extremely well taken care off. Those chocolates at 69cents are great for getting people in the door. And its no longer selling inferior products at a discount like regular dollar stores. Its starting to sell brand names at dollar store prices. Furthermore, if you guys did any real homework, you’d realize that Dollarama doesn’t go through a third party to get it’s products. It has a similar system to Wal-Mart at lower prices. This company is constantly improving.

Sorry, but I agree with none of you except James; his father has good intuition.

I prefer small growth stocks to have little to no debt on the balance sheet and a nice cash position. They aren’t all that hard to find. Besides that, retail is generally an ugly business, the barriers to entry are too low. Dollarama is one of the better operators in their space, but it is a crowded market at the low end.

If they were in a distressed position, there are lots of fishy things on the balance sheet. Total assets is $1.36 billion, liabilities $1.26 billion (net assets of only $100 million). Goodwill of $707m (generally valuable only in the continual operating of the company); intangible assets such as “brand name” of over $100 million. There would not even be enough cash left over for debtholders. However, this is irrelevant if we assume that there is little risk the company will not operate prospectively.

If this company is valued at 1.25 billion by the IPO, my initial reaction would be that it would be a poor valuation. While the company is generating lots of operating cash flow ($116 million in 2009) the amount required to continually invest and grow the company (and pay off debt) is quite high. Net cash flow for 2009 was only $40 million! That’s less than 4% return on cash flow. Even when you incorporate a growth rate, it still doesn’t look attractive. As with many retail-type investments, it’s simply hard to get your money back due to competitiveness & constant updating of fixed assets.

This IPO smells like an opportunity for the original investor, who will still own a majority ownership, to get out down the road depending on what happens with the economy (and other current investments / opportunities). They’re clearly creating options for themselves, at the very least.

Another quick comment: the CFO just left. I believe I read in a news report that he was retiring. Whether this was actually the case or not, a CFO leaving can increase the risk associated with an investment.