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