Dollarama Stock: Buy, Sell, or Hold?

Dollarama (TSX:DOL) stock continues to climb into the three-digit range, but can the low-cost retailer keep it up in the next year?

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It may seem as though earnings are done and dusted, but Dollarama (TSX:DOL) would beg to differ. Dollarama stock is set to release its earnings report for the first quarter of 2025 on June 12. With the date quickly approaching, let’s look at whether investors might see even more growth or a dip.

Buy 

Dollarama stock has demonstrated impressive growth in both sales and earnings. With sales increasing by 16.1% in Fiscal 2024 and comparable store sales growing by 12.8%, the company has shown consistent expansion in its revenue streams. Additionally, the diluted net earnings per common share rose by 29.0% in fiscal 2024, indicating strong profitability and efficient management.

What’s more, Dollarama’s expansion strategy is yielding positive results. The company opened 65 net new stores in fiscal 2024, maintaining its pace from the previous year. This expansion contributes to the top-line growth and strengthens Dollarama’s position in the market. Expansion also came through its investment in Dollarcity in Latin America, providing an even larger growth opportunity.

Then there is the outlook for 2025, which remains optimistic. Despite economic uncertainties, Dollarama stock anticipates continued comparable store sales growth of 3.5% to 4.5%, building upon two years of double-digit growth. This reflects the company’s resilience and ability to adapt to changing consumer preferences.

Sell

Now, all this looks quite positive; however, there were some red flags that investors will want to watch in the coming quarterly report. Despite posting strong numbers, there are signs of decelerating growth. Comparable store sales growth, while still positive, has decreased from 15.9% in the fourth quarter of fiscal 2023 to 8.7% in the fourth quarter of fiscal 2024. This suggests that the rapid growth phase may be tapering off, which could impact future earnings and stock performance.

Furthermore, the company’s expenses have risen significantly, outpacing the growth in sales. In fiscal 2024, selling general and administrative expenses increased by 17.3% compared to the previous year. This indicates higher operating costs, particularly in-store labour, which could put pressure on margins and profitability going forward.

What’s more, Dollarama’s gross margin improved slightly, operating margin remained relatively stable. However, with rising expenses and potential inflationary pressures, there’s a risk of further margin compression in the future. This could limit the company’s ability to sustain its current level of profitability. Considering this as the unforeseeable future that could impact consumer behaviour, there are certainly reasons to think maybe the time of growth is up.

Hold

Overall, Dollarama stock has proven to be a strong stock over time. Dollarama has consistently met or exceeded its financial guidance, indicating management’s ability to effectively execute its strategic plans. This consistency in performance enhances investor confidence in the company’s ability to deliver on its promises.

Furthermore, the recent 29.9% increase in the quarterly cash dividend reflects management’s confidence in the company’s future cash flows and earnings. This dividend increase enhances the attractiveness of Dollarama’s stock to income-seeking investors. Add on share repurchases, and management certainly believes more growth is to come.

Meanwhile, its fiscal outlook for 2025 remains positive, with a stable position in the current retail market. So, don’t give up on Dollarama stock quite yet and keep an eye on the first quarter of 2025.

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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