Why Dollarama Inc. Is a Great Growth Stock

Dollarama Inc. (TSX:DOL) remains one of the best investment opportunities in the market with strong sales and growth prospects.

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There are plenty of retail stocks in the market to add to your portfolio, but there are few (if any) that can provide the sort of return that Dollarama Inc. (TSX:DOL) can.

Since the first store opened in 1992, Dollarama has expanded to become the largest dollar-store operator in the country with over 1,000 locations across Canada in every province.

Dollarama recently provided a quarterly update that once again reinforced why the company is such a great investment. Here’s a look at how Dollarama fared in the most recent quarter and why you should consider investing in it.

Quarterly results

In the most recent quarter, Dollarama posted sales of $641 million–a 13.2% increase over the same quarter last year. An interesting point worth noting here is that not only did sales increase, but the average transaction size for sales also increased by 3.7%.

Gross margins came in 1% stronger over last year at 37%, while Dollarama reported earnings of $83.2 million for the quarter–an impressive gain of 28.4% over the same quarter last year.

Dollarama had 1,038 stores at the close of the quarter and added 66 new stores over the course of the past year. For the fiscal year, Dollarama opened net 75 new stores; the stores averaged nearly 10,000 square feet. The company still plans to open up to 70 new stores by the end of January 2017.

Dollarama currently trades at just under $97. The stock has showed a very healthy 21% gain year-to-date and appreciated over 80% in the past two years. Analysts are well aware of the potential of the stock with some issuing price targets of up to $120.

In addition to being a great growth stock, Dollarama also pays a quarterly dividend. The current dividend is set to $0.10 per quarter, which gives the stock a yield of just 0.41% at the current price. While the dividend is hardly a reason enough to invest in Dollarama, the company has increased the dividend over the past few years and is likely to continue that trend.

What sets Dollarama apart?

At first glance, Dollarama may appear to be just another dollar store, but when viewing the recent results and performance of the stock, it becomes clear that there’s something unique about the retailer.

One of the most interesting things about Dollarama is how the company is able to attract customers to its stores to get just one thing, but they emerge with a cart full of goods. Dollarama has a certain magnetism that other retailers can only wish for.

On a personal note, I’ve tried to leave a Dollarama store with just one thing on more than one occasion and failed.

Dollarama’s current pricing model is another interesting point worth mentioning. Currently, prices in store are capped at $4 or less. Prices have steadily increased over the years, but shoppers still perceive the value they’re receiving, and many goods are often bundled together, resulting in the perception of an even better deal.

In my opinion, Dollarama remains one of the best retail stocks available on the market. Dollarama’s results continue to show strong growth, and the company’s aggressive expansion will translate into greater returns for investors.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Demetris Afxentiou has no position in any stocks mentioned.

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