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Dorel: Worth the Wait

 November 15, 2012 11:51 AM


(By Saj Karsan) Dorel is one of the oldest stocks on this site's Stock Ideas page, but its time to join the Value In Action page has finally come. Having fallen to as low as $16/share in 2009, the stock now trades for almost $40/share, offering investors who buy when sentiment is negative and sell when sentiment is positive an extraordinary return.

Dorel can be a volatile stock, which works out well for investors looking to take advantage of price volatility. As a distributor into big box stores where shoppers prize low prices, Dorel's margins are constantly under pressure. At the same time, inventory cycle propagation (whereby over or under orders by customers in one period are reversed in future periods) can cause temporary swings in sales that are much larger than swings in business value.

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But at the same time, Dorel is diversified, selling a number of lines from furniture to juvenile products (e.g. car seats, strollers) to bicycles. If certain products or product lines are doing poorly, profits don't fall off a cliff like they do at one-hit wonders. This can give investors safety even as market pessimism knocks down share prices.

Management has also done a decent job buying companies on the cheap, including its own shares when market conditions have so warranted. So investors not only owned a well-operated business, but they were also the beneficiaries of good capital allocation, a combination that isn't easy to find in my opinion!

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I miss owning this company already! Hopefully the stock's volatility continues and we all get another decent entry point.

Disclosure: No position

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