The Motley Fool

TFSA Investors Got Rich on This Stock: There’s Still Time for You to Join

Dollarama Inc. (TSX:DOL) was a millionaire-maker stock. In 2009, shares traded at just $3.25 apiece. Today, they’re each worth around $47 at writing for a whopping 1,400% return over a 10-year period. An investment of $100,000 would have ballooned to $1.4 million today.

The good news is that Dollarama still looks like a millionaire-maker stock. Over the next decade, I don’t expect growth to match the past, but there’s still considerable upside to be had. Under many scenarios, the company could triple, or even quadruple in value. It will take patience to turn thousands into millions, but with time, Dollarama stock is looking like a solid bet.

Perfecting the recipe

Dollarama has perfected its business model. In 1999, the company was founded as a single price-point retail chain. Over the next 12 years, the company steadily grew its store count and sales base, eventually attracting a sizable investment from Bain Capital in 2004. From there, the company went gangbusters.

By 2009, it had 585 stores across 10 provinces. In 2015, it opened its 1,000th store. By 2016, Dollarama had introduced several new price points, completing its evolution from a standard dollar store to a broad-based discount retailer.

Today, management is targeting 1,700 domestic stores with a large digital presence targeting underserved communities and company supply chains. Dollarama has spent decades perfecting its recipe for growth and profitability. That’s made long-time investors rich, but the biggest growth opportunity may lie ahead.

Scale globally

Today, Dollarama dominates Canada’s discount retail market. It has 1,250 domestic stores that gross roughly $3 million apiece. Over the last 12 months, its produced $3.7 billion in sales, generating a respectable $1.1 billion in EBITDA.

The company has 250% more stores than its four closest competitors combined. But despite its dominance, Canada’s retail industry represents less than 2% of the global market. The true growth opportunity lies abroad.

Back in 2013, the company quietly formed a partnership with Latin American value retailer Dollarcity. I’ve long thought that this overlooked growth driver had the potential to more than double the size of the company.

In March, I wrote that “the market may have forgotten about this potential growth driver, but you shouldn’t.” Since that article, shares have popped more than 40%, but don’t let that discourage you. If Dollarama can succeed with Dollarcity, the sky’s the limit.

Dollarcity currently only operates 170 stores throughout a handful of Latin American countries. In 2018, Dollarcity generated sales of $236 million, only 6.3% the size of Dollarama. Over the next decade, Dollarama wants to scale the business beyond 600 stores. Additionally, its EBITDA margins (16%) lag Dollarama’s (23%), adding another lever for profit growth.

Dollarama executed an option earlier this year to acquire a 50.1% controlling stake in Dollarcity, and Dollarama alone controls its future. Given its long history of success, it’s probable that there’s big value here.

If Dollarcity is a success, the current valuation is a steal. Plus, if the model scales in Latin America, what’s stopping Dollarama from moving into South America, Asia, Europe, Africa, and beyond?

In my eyes, Dollarama really is the stock that keeps giving. Long term, I expect many more investors to become millionaires off this stock. Accruing those gains through a tax-free TFSA is merely the icing on the cake.

Just Released! 5 Stocks Under $49 (FREE REPORT)

Motley Fool Canada's market-beating team has just released a brand-new FREE report revealing 5 "dirt cheap" stocks that you can buy today for under $49 a share. Our team thinks these 5 stocks are critically undervalued, but more importantly, could potentially make Canadian investors who act quickly a fortune. Don't miss out! Simply click the link below to grab your free copy and discover all 5 of these stocks now.

Claim your FREE 5-stock report now!

Fool contributor Ryan Vanzo has no position in any stocks mentioned. 

Two New Stock Picks Every Month!

Not to alarm you, but you’re about to miss an important event.

Iain Butler and the Stock Advisor Canada team only publish their new “buy alerts” twice a month, and only to an exclusively small group.

This is your chance to get in early on what could prove to be very special investment advice.

Enter your email address below to get started now, and join the other thousands of Canadians who have already signed up for their chance to get the market-beating advice from Stock Advisor Canada.

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.