Is Dollarama Stock a Buy?

Dollarama stock (TSX:DOL) has seen shares surge on the back of strong performance and a dividend boost, but it also could be fully valued.

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Dollarama (TSX:DOL) has been one of the biggest winners of the last few years. Whether it was offering an essential service during the pandemic, or providing cheap options during inflation, Dollarama stock has stayed ahead.

And that was the case yet again with recent earnings. Shares are now up 51% from 52-week lows. But after such a high climb, is there still value to be had? Or should investors fear a drop?

Resilience

First, let’s consider what makes Dollarama stock so strong in the first place. Dollarama’s business model of offering low-priced goods tends to perform well even during economic downturns. In tough economic times, consumers often turn to discount retailers to stretch their budgets, which can benefit Dollarama’s bottom line. 

Dollarama stock has also demonstrated consistent growth over the years, expanding its store count and revenue. This growth trajectory is attractive to investors seeking stable returns over the long term. Furthermore, Dollarama continues to expand its footprint, opening new stores across Canada. Additionally, there may be opportunities for international expansion in the future, potentially driving further growth.

As seen during earnings, Dollarama stock has maintained healthy profit margins, which is a positive sign for investors. Consistently profitable companies are generally viewed favourably by investors. And profitability was kept up during its most recent earnings report.

Into earnings

Shares surged after strong fourth-quarter earnings with the promise of more growth in the future. Dollarama has experienced significant growth in sales, with a notable increase in comparable store sales of 8.7% for the fourth quarter and 12.8% for Fiscal 2024. This indicates strong consumer demand and suggests that Dollarama’s value proposition is resonating well with customers. 

The diluted net EPS for Dollarama stock increased by 26.4% for the fourth quarter and 29% for Fiscal 2024 compared to the previous fiscal year. This growth in EPS reflects the company’s ability to effectively manage its operations and generate profits.

What’s more, Dollarama stock increased its quarterly dividend by 29.9%, indicating confidence in its financial performance and a commitment to returning value to shareholders. Lastly,  Dollarama stock continues to expand its store network, with 65 net new stores opened in Fiscal 2024.

Looking ahead

The big question came down to the future, and that’s where analysts weighed in. Analysts generally have a positive outlook on Dollarama stock following its recent earnings report, but there are some differing opinions regarding its valuation and growth prospects. 

In general, Dollarama stock continues to produce strong financial performance and market share gains. However, right now the stock looks fully valued, so there could be limited upside potential. There could therefore be more value-oriented names to consider over Dollarama stock with its premium valuation. However, over time the company continues to be a strong producer. So long-term holders may still benefit.

Overall, while analysts recognize Dollarama’s strong performance and growth potential, there are concerns about its valuation and the potential for growth to slow down. Investors may want to consider these factors along with their own investment goals and risk tolerance before making decisions about Dollarama stock.

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 Amy Legate-Wolfe 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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