There is no shortage of high-quality stocks for Canadian investors to choose from on the TSX, especially for long-term investors looking to buy and hold for years. And while there are certainly numerous high-quality stocks to consider, there’s no question that one of the very best stocks in Canada is Dollarama (TSX:DOL), the rapidly growing discount retailer.
Dollarama is not just a high-quality stock. It’s also one of the most popular retailers in Canada and top destinations for Canadians to buy staples and household goods, as well as other seasonal products.
It’s one of the most impressive businesses in Canada both due to its business model and top-notch management. So let’s look at how much investors have made holding Dollarama stock over the last five years and whether or not it’s worth investing in today.
How much money have investors made owning Dollarama?
Dollarama is one of the top stocks in Canada due to its significant growth potential. However, even more important than how quickly its share price can increase is the consistency with which it does.
Dollarama is constantly finding new ways to expand its business and increase profitability, and the share price continues to follow suit.
Therefore, it’s no surprise that in the last five years alone, Dollarama stock has gained over 210% or a compounded annual growth rate (CAGR) of 25.3%. That means if you had invested just $1,000 in Dollarama five years ago, it would be worth more than $3,100 today. Meanwhile, a $5,000 investment would be worth more than $15,500 today.
Plus, as I mentioned before, as impressive as the rapid growth is, the consistency is even more important. So while Dollarama investors’ have seen their investment in Dollarama increase at a CAGR of 25% over the last five years, over the last decade the growth rate has been nearly identical with Dollarama up 839% or a CAGR of 25.1%.
Therefore, although a $1,000 investment five years ago is worth $3,100 today, a $1,000 investment a decade ago would be worth more than $9,350, and a $5,000 investment would be worth more than $46,900 today.
This consistent and rapid growth goes to show exactly why Dollarama is one of the best stocks on the TSX. As I mentioned above, both its business model and execution have been key to Dollarama’s impressive performance over the last decade.
As a discount retailer, consumers are always looking for ways to save on essential products and staples. Furthermore, discount retailers often see a bump in times of economic turmoil. So Dollarama’s not just a high-quality growth stock; it’s also quite defensive.
Furthermore, with management consistently opening new stores, improving merchandising and constantly driving more sales, Dollarama’s revenue and profitability continue to grow.
Therefore, although high-quality stocks often trade at a premium, Dollarama has demonstrated exactly why investors should focus on buying the best stocks first rather than trying to buy the cheapest stocks on the market, which often have issues with their operations.
Is Dollarama stock worth buying today?
Since Dollarama stock is one of the best and most reliable companies in Canada, and since it has a lengthy track record of execution, investors can consider buying Dollarama even if it seems slightly expensive. However, I would avoid buying the stock if it’s trading above its historical average ranges.
Today, even with the economy starting to rebound and interest rates now on the decline, analysts still expect Dollarama to grow its operations meaningfully over the coming year.
For example, right now analysts estimate Dollarama’s revenue will grow another 8.6% this fiscal year, and its normalized earnings per share will increase by over 14%. So with Dollarama stock trading at roughly $144 a share, it’s currently trading at a forward price-to-earnings ratio of 33.7 times.
That may sound expensive for most stocks on the TSX, but for a high-quality and consistent growth stock like Dollarama, it’s still within its historical range, albeit at the high end.
So, if you’ve been thinking about adding Dollarama stock to your portfolio you could certainly consider initiating a position today, just ensure you plan to hold the stock for the long haul to help mitigate against short-term volatility and take full advantage of its long-term growth prospects.
