Dollarama (TSX:DOL) is a top TSX stock that investors would have loved to own from the get-go. It has simply created tremendous wealth for its buy-and-hold investors. For example, a Canadian who invested $10,000 a decade ago would be sitting on about $71,370 for annualized returns of 21.7%.
This greatly outperformed the Canadian stock market, which returned just north of 8% per year in that period. Putting it in perspective, the market would have turned an initial $10,000 investment into roughly $21,750.
In the last 12 months alone, the growth stock has climbed approximately 19%, which is a strong return versus the market’s upside of about 3%. Let’s take a closer look at Dollarama stock
The business
The value retailer essentially has no competition in Canada. So, it runs pretty much a monopoly in the country. On top of that, management has obviously been making excellent selections for its wide variety of consumable products, general merchandise, and seasonal items that may be available in-store or online.
This is evident in its sales per share growth at a compound annual growth rate (CAGR) of almost 15.5% in the past 10 fiscal years, which drove operating income per share growth at a CAGR of 19%. The earnings per share growth in the period was at a similarly high pace – just under 19% per year.
The company has about 1,541 stores across Canada, and it has plans to grow the store count to about 2,000. Its merchandise sells at select fixed price points up to $5, which is a great value, particularly in the high inflationary environment we have experienced recently.
Furthermore, Dollarama is trying to extend its success story outside Canada. Currently, it has a joint venture in Dollarcity, a growing value retailer in Latin America. Dollarcity’s products are offered at fixed price points up to US$4 in 480 stores in El Salvador, Guatemala, Colombia, and Peru. This partnership could help support Dollarama’s growth.
Is it too late to buy Dollarama stock?
At $97.14 per share at writing, Dollarama stock trades at about 28.5 times its adjusted earnings. This is a high price-to-earnings ratio, which means investors expect it to grow at a high pace. The analyst consensus earnings per share growth estimation is 16.9% per year over the next three to five years, which is above average. Based on the 12-month analyst consensus price target, the stock is fairly valued.
The company has strong operations and a business that is defensive and allows it to drive more sales and profits in economic downturns. Indeed, its earnings per share continued to increase during the 2020 pandemic year.
As noted earlier, in the foreseeable future, the value retailer will be growing its store count. Besides, as Warren Buffett puts it, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” So, it may be a good idea to start buying Dollarama if you don’t already have a position.
If you’re concerned about its high multiple, start small and aim to add on dips, which the volatile stock market would provide occasionally even in this resilient stock. Commission-free trading platforms like Wealthsimple are a great place to build a position in Dollarama. You can invest as little as a $1 a day.
