Over the past decade, only a hand full of Canadian stocks have managed to grow rapidly and consistently, earning a compounded annual growth rate (CAGR) of more than 20%. One of those unbelievable stocks is Dollarama (TSX:DOL).
Dollarama is an impressive long-term growth stock that you can own with confidence, as it has performed exceptionally well through many different economic environments.
As the economy expanded and the stock market was in a bull run, Dollarama continued to open new stores and grow its operations. Throughout the pandemic, it also was a top performer, thanks in large part to the fact it’s so defensive.
However, more recently, as the economic environment has deteriorated rapidly, inflation began to surge, and many have been expecting a recession, Dollarama has actually been performing even better.
In 2022 alone, its sales grew by roughly 17%, and its normalized earnings per share (EPS) increased by over 26.5%. So, with Dollarama stock firing on all cylinders, can it reach $100 a share by 2024, and is it worth an investment today?
Dollarama is an unbelievable growth stock
Over the last decade, Dollarama stock is up by 648%, or a CAGR of 22.3%, easily one of the best performances of any Canadian stock. Furthermore, so far, year to date, Dollarama is up by roughly 13%, on pace for a CAGR of nearly 27%.
The impressive performance of the stock should be no surprise, though, given how exceptional Dollarama’s operations have been.
Since the stock is a discount retailer and one of the best-known brands in Canada, it’s only natural that it would see an uptick in popularity, as consumers re-evaluate their spending patterns and budgets.
What makes Dollarama such an attractive business is that it’s both a growth stock and a defensive business. In good economic times, it can continue to grow, because consumers will always be looking to save money and buy essential staples for as cheap as possible.
However, as we’ve seen in the current environment, it can perform even better when the economic environment deteriorates, which is precisely why it’s such an excellent investment to buy and hold for the long haul.
After seeing its sales increase by over 16% last year and its EPS gain over 26%, analysts estimate it can see another 12% increase in sales and a 15.5% increase in EPS this year.
Therefore, while Dollarama’s performance has been spectacular, there is still more potential, especially in the near term, to continue growing rapidly.
Is the discount retailer worth buying today?
Despite the impressive performance of Dollarama, figuring out whether or not the stock can grow to over $100 a share this year is a bit more difficult due to several factors.
First, it will have to continue to perform well and likely meet or even exceed expectations that analysts have for its sales and profitability this year. However, even if it can achieve the growth analysts expect it to, the stock’s performance will also be based on what kind of market conditions we see for the rest of the year.
That’s why it’s so difficult to try and trade stocks in the short term rather than buying and holding them for the long haul.
Nevertheless, if you’re wondering whether the stock could hit $100 this year, it certainly looks achievable. Right now, analysts expect its EPS this year will reach $3.19 and grow to $3.64 next year. Therefore, to get to $100 a share, Dollarama would need to be trading at a forward price-to-earnings (P/E) ratio of 27.5 times.
That certainly seems achievable, considering its current forward P/E ratio is 27.2 times, and its average P/E ratio over the last three and five years has been 25.9 and 24.7 times, respectively, with a high of more than 30 times.
So, while the stock may seem like it’s expensive, it trades with a premium for a reason and is only slightly more expensive than it’s historically traded at.
Therefore, whether or not Dollarama stock makes it to $100 by year-end, if you’re a long-term investor looking for a stock you can buy now and commit to for years, Dollarama is certainly one of the best Canadian stocks you can consider adding to your portfolio today.