Today, Mr. DIY is trading at RM 1.49 a share, 40-50% decline from its peak price, which was RM 2.83 a share in April 2021, exactly 3 years ago.

Source: Google Finance

Interestingly, in that 3-year period, I saw that Mr. DIY’s stores were expanding & mushrooming in malls, commercial lots and neighbourhood shoplots not just in my neighbourhood but “everywhere” all over Malaysia. 

So, if a company’s business is booming, why is its stock price tanking? Doesn’t it sound contradicting? 

Here, I’ll attempt to find an explanation to this seemingly peculiar situation. We would deep dive into Mr. DIY’s fundamentals and valuation to seek for answers. 

1. Fundamentals

At fundamentals, we’ll assess Mr. DIY’s business model, financials and as well as its growth initiatives for the future. 

Let’s start with its business model. 

Mr. DIY sells home improvement products in outlets situated at shopping malls, commercial centres and neighbourhood shophouses across Malaysia. The store count increased by 3.5x from 354 outlets in 2017 to 1,255 outlets in 2023.

Source: Mr. DIY

Now, let’s assess its financials. 

For Mr. DIY, it reported consistent growth in revenue, profits and operating cash flows. Sales increased from RM 1.2 billion in 2017 to RM 4.4 billion in 2023. The amount of profits rose from RM 210 million to RM 561 million in that period. 

Source: Mr. DIY

Mr. DIY had generated positive and growing operating cash flows in that period. In total, it generated RM 3.3 billion in operating cash flows and raised RM 332.3 million in equities. Of which, it spent: 

  • RM 1.0 billion in net purchases of property, plant & equipment (PPE). 
  • RM 0.7 billion in net payment of lease liabilities. 
  • RM 1.4 billion in dividend payments. 
  • RM 0.4 million in net interest costs. 

Source: Mr. DIY

Hence, I learnt that Mr. DIY chooses to allocate >50% of its operating cash flows into CAPEX (Growth activities: PPE & lease liabilities) and about 40+% in making dividend payments to shareholders. As it balances both growth and dividends, I would classify Mr. DIY as a Dividend-Growth stock. 

What about its growth initiatives?

From its latest investor’s presentation, I learnt that Mr. DIY has revealed its plan to add 180 outlets in 2024, thus, expanding its store count to 1,435 outlets. The company plans to expand its store count to 2,000 outlets in 2028. 

Also, it had completed the construction of an automated warehouse to support its retail expansion plans. Mr. DIY revealed that its warehouse would generate a total of RM 10 million in savings a year on labour and warehouse rental costs. 

So, after looking at its business model, financials, and growth plans, Mr. DIY had performed decently well in 2017-2023. As such, I had dismissed the fact that its decline in stock price was due to a deterioration in its business fundamentals. 

2. Valuation

Let’s calculate its P/E Ratio at its peak at RM 2.83 and all of its closing prices: 

  • 2020 – RM 2.08 
  • April 2021 – RM 2.83 (peak price) 
  • 2021 – RM 2.41
  • 2022 – RM 2.00 
  • 2023 – RM 1.45

Source: Google Finance

P/E Ratio = Stock Price / Earnings per Share (EPS)

Here, I produced as follows: 

Source: Google Finance

As you can see, P/E Ratios from 2020-2022 were well above 30. The highest P/E Ratio recorded was 79.1 at peak price of RM 2.83 in April 2021. Based on all the calculations above, it is clear that people who bought Mr. DIY in 2020-2022 had either ignored or were unaware of the basics of stock valuation. 

For this reason, they incur about 25-50% in capital loss (if they hold onto shares of Mr. DIY till this day). I believe this loss is unnecessary if they know and would calculate P/E Ratio in advance prior to buying its shares. 

So, in conclusion, the stock price decline in Mr. DIY is due to stock valuation and not on its business fundamentals.

Here, the key lesson is this – 

A fundamentally good stock is only a good investment if its valuation is good. In this context, good valuation refers to valuation metrics like: 

  • P/E Ratio 
  • P/B Ratio 
  • Dividend Yields
  • not stock prices. 

Ian Tai
Ian Tai

Financial Content Machine. Dividend Investor. Produced 500+ Financial Articles featured in in Malaysia and the Fifth Person, Value Invest Asia, and Small Cap Asia in Singapore. Regular Host and Presenter of a Weekly Financial Webinar with Co-Founded, an online membership site that empowers retail investors to build a stock portfolio that pays rising dividends year after year in Malaysia and Singapore.

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