One of the most succussful IPOs of 2019. DOHOME operates retail stores selling hardware, agriculture tools, furnishing, and other home renovation products to consumers in Thailand. In summary, it is a competitor of Siam Global, Home Pro and Thai Watsadu. After falling 44% in the first quarter this year, its share price has risen 122% in the second quarter, and a further 18% through thr current quarter.
It reported a relatively poor second quarter profit as it was affected by the closure of a few stores during April and May following the coronavirus outbreak. The cases of HMPRO and GLOBAL, for example, had investors ignoring the short-term impact to focus on long-term profitability and franchise value of the company.
DOHOME says it is pushing ahead with plans to open new stores this year. If the expansion plan shared in May is unchanged, it will add 84 new locations for its 84 warehouse type branches. It mainly operates in provinces there by avoiding head on competition with modern home renovation product stores — HMPRO.
The company is not very well researched yet. The reason for a sharp rise in its share price in 2Q, I observe, was investor faith in DOHOME’s ability to build franchises in long-term. Price fall in 1Q was due to unexplained reasons. Further its share price rise this year is in line with price performance of GLOBAL, its competitor.
Is the current valuation sustainable? It is quite challenging to assign a PE ratio multiple for a company in the expansion phase, hence its current PE multiple should be ignored. A simple measure to compare retailers is Price to Sales. On this measure, DOHOME looks relatively cheap when compared with GLOBAL and HMPRO.
I advice adding this stock to your portfolio.
But a word of caution – DOHOME’s volatility is quite high, which points to a sharp correction in price irrespective of fundamentals. Therefore, buy on a share price down day.