Where Will Dollarama Stock Be in 5 Years?

Dollarama (TSX:DOL) stock has been on a tear, with shares up 17% in the last year. But should we see more of the same in the next five years?

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Dollarama (TSX:DOL) stock has been on a tear as of late. And that’s certainly saying something. While other retail stocks are pretty much suffering, Dollarama stock continues to come out on top.

But will it last? The company sees an increase in activity thanks mainly due to higher inflation and interest rates. This is causing Canadians to look for consumption elsewhere, at cheaper locations like Dollarama stock.

So, where will the stock be in the next five years?

A brief history

Dollarama stock has already had a pretty crazy last five years. The company saw its doors close, along with other retailers, once the pandemic hit. Yet it was then allowed to remain open, as it was deemed an essential business. This was enormous, as the company could continue making sales while others could not.

When Dollarama stock opened its doors once more, it was met with a surge of consumers who had saved up cash. The company had expanded its offerings by then, bringing in more brand names and recognizable products to its shelves. Instead of paying hefty prices elsewhere, customers could get it all in one cheap location.

Now, consumers can still find items for a dollar, but the company has increased its sales up to $5 as well. And that’s just fine by consumers looking for brands they trust while also looking to keep cash in their pockets.

So, what’s been going on lately?

Earnings come in

During its most recent earnings report, Dollarama stock beat estimates yet again for the quarter. Sales increased 19.6% year over year, reaching $1.46 billion! Further, comparable store sales increased by 15.5% over last year, far higher than the 13.2% the year before. Earnings before interest, taxes, depreciation, and amortization (EBITDA) were also strong, up 23.8% compared to the year before, or 31.4% of sales.

The company also continued its growth path, opening 18 new stores, compared to 13 new stores the year before. And even in and amongst all this, Dollarama stock has been buying up shares for cancellation, totalling $248.1 million in the quarter.

“Our performance year to date for this fiscal year reflects our differentiated ability to provide compelling value across our broad product mix and a consistent shopping experience. Dollarama continues to deliver unparalleled value to a growing number of consumers seeking affordable everyday products at low price points, and we expect this strong demand to persist through the second half of the year in the current macro-economic context.”

Neil Rossy, President and chief executive officer.

Acquisitions on the horizon?

During its most recent earnings, analysts applauded the company’s moves. Yet, in a research note, one analyst in particular stated there is even more potential growth on the horizon. And that could be as the company continues searching for acquisition opportunities.

Dollarcity in Latin America has been a success, with strong cash coming in. There is speculation that the company may purchase The Reject Shop, another discount retailer based out of Australia. Yet it also looks like this will be slow and steady, with Dollarama stock remaining focused on domestic growth as well as its Dollarcity investment.

This conservative approach is exactly what investors like about the stock. Its continued success at home and abroad makes it a continued strong choice to consider, and exporting that business model elsewhere could certainly create exceptional growth.

So, what do the next five years look like for Dollarama stock? With shares already up 17% in the last year, investors should expect even more of the same in the coming years as well.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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