Dollarama (TSX:DOL) is one of the top low-volatility stocks listed on the TSX. Despite remaining relatively immune to wild market swings, Dollarama stock has gained about 21% over the past year. Further, it has grown at a compound annual growth rate (CAGR) of about 21% to deliver an overall gain of more than 577% in the past decade.
Dollarama’s impressive stock price gain and defensive business model make it an excellent investment in all market conditions, indicating it is a buy right now. Further, its stock is trading at a forward price-to-earnings multiple of 25.8, which is in line with its historical average. In this context, let’s look at the factors that support my bull case.
Factors to drive Dollarama stock
Dollarama is Canada’s leading value retailer that sells everyday items at select, low fixed price points up to $5. This strategy has boosted its sales by driving value-oriented consumers to its stores. Moreover, the company’s store network expansion strategy drives its revenues by increasing brand awareness. Furthermore, Dollarama directly sources merchandise from overseas vendors, reducing merchandise costs, diversifying its product offering, and supporting its margins.
Thanks to its growth initiatives, Dollarama’s top line has grown at a CAGR of 10% from fiscal 2011 (FY11) to FY23. At the same time, its net earnings grew at a CAGR of impressive 16%. Further, on average, Dollarama has opened about 68 stores per year over the past decade and currently has about 1,541 stores compared to 652 in FY11.
Besides growing its sales and earnings at a solid pace, Dollarama boasts best-in-class margins. The company’s gross and EBIT (earnings before interest and taxes) margins stand at 44.1% and 24.8%, respectively, compared to 36.1% and 16.5% in FY11.
The value retailer’s strong financial performance will likely drive its share price higher. Besides capital appreciation, investors will likely benefit from Dollarama’s focus on returning cash to its shareholders. Dollarama has returned $6.1 billion to shareholders via share repurchases since FY13. Moreover, it paid about $605 million in dividends since FY12 and increased the dividend 12 times during the same period.
Bottom line
It’s worth noting the momentum in its business has been sustained in FY24, with Dollarama achieving a notable sales growth of over 18% during the first nine months of the current fiscal year. Moreover, its earnings per share marked an increase of approximately 30% during the same period.
Looking ahead, its higher sales and efficient sourcing will drive its earnings and stock price. Further, its balanced capital allocation will support its payouts and share buybacks.
Overall, Dollarama appears to be a compelling investment choice in all market conditions. Also, it is a solid bet for investors seeking a blend of safety, growth, and income. The retailer’s low-risk business model consistently generates substantial growth. Moreover, its pricing and sourcing strategy drives traffic and earnings regardless of economic situation. The company’s resilient business model enables it to return a significant amount of cash to its shareholders via a combination of dividend distributions and capital appreciation.
