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.

| More on:
thinking

Image source: Getty Images

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.

More on Stocks for Beginners

IMAGE OF A NOTEBOOK WITH TFSA WRITTEN ON IT
Stocks for Beginners

5 Canadian Stocks to Hold in Your TFSA For Decades

The TFSA is the perfect place to compound wealth over decades. Don't pay any tax on these top five growth…

Read more »

An airplane on a runway
Stocks for Beginners

Where Will Air Canada Stock Be in 3 Years?

Here’s why I wouldn’t be surprised if Air Canada (TSX:AC) stock more than doubles in value in the next few…

Read more »

clock time
Stocks for Beginners

Is It Too Late to Buy Dollarama Stock?

Dollarama stock (TSX:DOL) is up a whopping 48% in the last year, but growth is slowing for this great low-cost…

Read more »

Oil pumps against sunset
Energy Stocks

Lower Loonie? This Sector’s a Gusher Anyway

If the Canadian dollar weakens, this one industry is set to make enormous profits, and investors can get in on…

Read more »

Stocks for Beginners

3 No-Brainer Stocks to Buy Under $13

These three stocks are cheap and easy buys if you want some quick wins in the next while. Just make…

Read more »

Hands shaking over a business deal
Tech Stocks

Meet the Growth Stock I Can’t Stop Buying This Year

Topicus stock (TSXV:TOI) has been a top growth stock this year, with strong finances, a stable acquisition strategy, and more…

Read more »

thinking
Stocks for Beginners

Up Over 25% After Earnings! Is Canada Goose Stock a Good Buy Now?

These important fundamental factors could help Canada Goose (TSX:GOOS) stock continue soaring in the long term.

Read more »

A bull outlined against a field
Stocks for Beginners

Bull Market Buys: 3 Magnificent Stocks to Own for the Long Run

These three stocks should be some of the first to bounce back in a bull market, which makes now a…

Read more »