Dollarama Stock Is Rising, But Is it Still a Buy?

Dollarama’s seemingly evergreen business model, continued expansion efforts, and initiatives to improve productivity make it a great Canadian stock to buy now and hold for the long term.

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If you’re looking for a reliable stock that has the potential to continue yielding strong positive returns irrespective of economic cycles, you might want to consider Dollarama (TSX:DOL) stock.

This Canadian discount retailer has been among the top-performing stocks on the TSX for a long time, delivering an outstanding 668% in the last 10 years. In 2024 alone, DOL stock has surged nearly 19% against the TSX Composite’s 3.3% year-to-date gains. As a result, Dollarama now trades at $113.43 per share with $31.5 billion in market capitalization.

But is Dollarama still a good stock to buy at its current price level, or has it become too expensive? Let’s take a closer look at its financial growth trends, fundamental outlook, and growth prospects to find out.

Why Dollarama stock has been rallying for several years

The very first question that might hit your mind is, what’s so special about Dollarama, which has been attracting investors for several years? The answer lies in its consistent sales and earnings growth, driven by its strategic expansion plans and value proposition. Dollarama operates over 1,550 stores across Canada, offering various essential and other products at low prices.

Despite the global pandemic-related operational challenges and other macroeconomic hurdles, the company has been able to increase its store count. To add optimism, its comparable store sales have also seen positive growth over the years as it continues to maintain a healthy gross margin and a strong cash flow.

Even during tough economic times, the sales of Dollarama’s discounted products remain strong, allowing it to continue growing financially irrespective of economic cycles. This could be the primary reason why DOL stock has rallied in 13 out of the last 14 years (even after excluding its gains in 2024).

Earlier this month, on April 4, Dollarama announced the financial results for the fourth-quarter and full-year fiscal year 2024 (ended in January). Even as inflationary pressures and high interest rates continue to affect consumer spending, the company’s total sales during the fiscal year jumped more than 16% YoY (year over year) to $5.9 billion. Besides the addition of new store locations to its network, a 12.8% YoY increase in its comparable store sales contributed positively to its revenue growth.

Stronger comparable store sales also helped Dollarama post a solid 29% YoY increase in its adjusted earnings to $3.56 per share for fiscal year 2024, which exceeded Bay Street analysts’ expectations of $3.46 per share.

A company’s sales growth would not matter much if it didn’t lead to increased profits. And Dollarama’s latest results didn’t disappoint on this front, as its adjusted net profit margin in fiscal 2024 expanded to 17.2% from 15.9% a year ago.

These initiatives could accelerate growth

In fiscal year 2024, Dollarama added 65 net new stores to its large network, increasing its total store count to 1,551 locations. Moreover, the company plans to maintain its base of new store openings in its fiscal year 2025.

Besides that, the company plans to continue focusing on improving efficiency by taking more labour productivity initiatives going forward. Given these expansion efforts and proactive initiatives, I expect Dollarama’s financial growth trends to accelerate further over the long term, making it a great stock to buy now and hold for the long term.

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.

The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

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