Up 189% Since 2019, Is Dollarama Stock a Good Buy Right Now?

Despite its market beating gains in the last 10 years, Dollarama is positioned to deliver outsized returns to shareholders in 2024 and beyond.

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One of the hottest growth stocks trading on the TSX is Dollarama (TSX:DOL), which has almost tripled in the last five years and is up a staggering 600% since January 2014. Its market-beating gains have meant the discount retailer is currently valued at $28.5 billion by market cap, making it one of the largest companies in Canada.

As past returns are irrelevant, let’s see why Dollarama stock should be part of your portfolio in 2024.

An overview of Dollarama

Dollarama was founded back in 1992 by a third-generation retailer. In the last three decades, the Quebec-based company has grown at an exponential pace to become a household name and the shopping destination of Canadians all over the country.

Recognized as a value retailer, Dollarama has more than 1,500 stores, as it aims to provide customers with a consistent shopping experience, offering a broad assortment of general merchandise, consumables, and seasonal items.

In August 2019, Dollarama acquired a 50.1% interest in Dollaracity, another value retailer in Latin America. It was Dollarama’s second growth platform, complementing the company’s domestic growth strategy. Dollarcity expects to end 2029 with 850 stores across Colombia, Guatemala, Peru, and El Salvador.

Dollarama also completed the expansion of its distribution centre, increasing its distribution capacity by 50% to support its expansion plans in Canada.

How did Dollarama perform in fiscal Q3 of 2024?

Despite a challenging macro backdrop and slower consumer spending, Dollarama increased comparable store sales by 11.1% year over year in the fiscal third quarter (Q3) of 2024 (ended in October). Comparatively, its total sales were up 14.6% at $1.48 billion.

An expanding top line and a narrowing cost base allowed Dollarama to post an EBITDA (earnings before interest, tax, depreciation, and amortization) of $478.8 million, up 24% from the year-ago period. Its operating income surged 28% to $387 million, while adjusted earnings rose 31.4% to $0.92 per share in fiscal Q3.

Dollarama opened 16 net new stores in the quarter, compared to 18 stores in the same period last year. Dollarama explained that sustained consumer demand for its products and a focus on execution drove double-digit store growth for the sixth consecutive quarter.

The company’s chief executive officer and president, Neil Rossy, stated, “Our financial and operational performance year to date reflects the strength and relevance of our value proposition and business model in a challenging macroeconomic context.”

Dollarama ended Q4 with $2.76 billion in debt and $730 million in cash. While its debt balance has risen from $2.25 billion, its balance sheet cash grew from $101 million in the last nine months.

Dollarama’s widening earnings base allows it to pay shareholders an annual dividend of $0.28 per share, translating to a yield of just 0.28%. However, these payouts have risen by 375% in the last 12 years, enhancing the effective yield over time.

Is Dollarama stock overvalued?

Dollarama is forecast to end fiscal 2025 with adjusted earnings per share of $3.86, compared to earnings of $2.76 per share in 2023. So, priced at 26.4 times forward earnings, Dollarama stock is not too expensive, given its earnings are forecast to rise by 17% annually in the next five years.

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 Aditya Raghunath 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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