There’s no question that Dollarama (TSX:DOL) is one of the most impressive businesses as well as stocks in Canada.
Dollarama’s consistent growth in sales, profitability, and share price alone is incredible. However, the fact that it’s so defensive and actually performs better when the economy is worsening makes it truly impressive.
And while it does perform well in tougher times, it has also consistently demonstrated that it can grow its sales when the economy is expanding.
Therefore, it shouldn’t be surprising that over the last 10 years, Dollarama stock has grown at a compounded annual growth rate (CAGR) of 21.8%. Since its IPO 14 years ago, it has grown at a CAGR of 27.5%.
Naturally, as stocks get bigger, though, growth can become harder to achieve. So where will Dollarama stock be in five years, and is it worth investing in today?
Where is Dollarama stock going over the next five years?
While Dollarama’s past growth has been nothing short of impressive, the stock has no plans to slow down. Right now, Dollarama has significant growth plans in the works and five years from now; it should be well on its way to achieving them.
First off, it plans to have 2000 stores open in Canada by 2031, up from the 1,541 stores that it has today. In addition, it plans to have 850 Dollarcity stores open in Colombia, Guatemala, El Salvador, and Peru by 2029, up from 480 today.
Over the years, Dollarama has done an impressive job of growing its sales by improving its merchandising and increasing same-store sales growth. A lot of its growth, though, comes from expanding its store count. And that shouldn’t be surprising when you see the economics.
On average, it costs roughly $920,000 to open a new store in Canada, and it takes just two years for the store to pay for itself. Furthermore, according to Dollarama, in the first two years, new stores generate approximately $2.9 million in sales.
That’s not all. After the first two years, stores require minimum maintenance capex requirements, which allows Dollarama to earn significant free cash flow and continue investing in growth.
And if you think growing its store count so significantly over the coming years sounds ambitious, over the last decade, Dollarama has averaged 68 net new store openings annually.
In fact, its current store network is now so extensive that 85% of the Canadian population lives within 10 kilometres of a Dollarama store.
As Dollarama continues to scale its business, margins are expected to improve
In the coming years, analysts expect Dollarama to continue consistently growing its sales. For example, next year, analysts expect its sales will grow by 7.7% and another 6.8% the year after.
What’s even more impressive, though not surprising given its store economics, is that each year Dollarama’s net margins are expected to continue to improve as the company scales up.
Dollarama’s fiscal 2024 ends at the end of January, and analysts are expecting normalized earnings per share (EPS) of $3.44. Over the next two years, though, in fiscal 2025 and 2026, analysts expect EPS to jump to $3.88 and $4.34, respectively.
That’s growth of 12% or more each of those years compared to expected revenue increases of 7.7% and 6.8%, showing that Dollarama is constantly improving its profitability.
Therefore, with the impressive long-term growth potential Dollarama offers, any time the stock temporarily pulls back from its highs is an opportunity you’ll want to take advantage of.
