Is Dollarama Stock a Buy Now?

Dollarama (TSX:DOL) is perhaps one of the safest stocks in Canada, and for good reason. It has a proven track record of strong growth and consistently yielding returns for investors, even in challenging times. After five years of double-digit gains, Dollarama stock has continued to soar in 2024, posting 51.3% year-to-date gains and trading at $144.43 per share with a market cap of $40.7 billion. With such an impressive performance, you might be wondering whether Dollarama is still a good buy or if it’s better to wait for a pullback.

In this article, let’s take a closer look at Dollarama’s recent financial performance, its future growth prospects, and whether now is the right time to add DOL stock to your portfolio.

A quick look at Dollarama’s business model

Dollarama’s success largely stems from its straightforward and resilient business model, which is highly scalable and efficient. The Canadian discount retailer offers a wide range of merchandise, including everyday essentials, seasonal items, and general merchandise, all sold mostly at fixed price points.

Maintaining a multi-price point strategy allows Dollarama to easily adapt to inflationary pressures while offering customers affordable options. This flexibility not only helps the company manage rising costs but also enables it to cater to a broader customer base, especially in times of high inflation.

Impressive financial performance

In recent years, Dollarama’s financial performance has been nothing short of impressive. In its fiscal year 2024 (ended in January 2024), the company’s sales jumped 16.1% YoY (year-over-year) to $5.9 billion with the help of strong same-store sales growth and new store openings. Its adjusted annual earnings also climbed by 29% last fiscal year to $3.56 per share as it continued to capitalize on strong consumer demand for affordable products.

Dollarama continues to maintain this strong financial growth trend this year as well. In the second quarter of its fiscal year 2025 (ended in July 2024), its sales rose 7.4% YoY to $1.6 billion, while its adjusted net profit surged by 16.4% to $285.9 million mainly due to improved gross margins and lower logistics costs. These strong financials clearly reflect the company’s ability to boost profitability despite inflationary pressures.

Continued focus on expansion

Despite recent macroeconomic challenges, Dollarama has maintained its focus on expansion. It opened 14 net new stores in the latest quarter, bringing its total store count to 1,583​. With this, the company remains on track to meet its target of opening 60 to 70 new stores by the end of the fiscal year, which will further strengthen its market presence across Canada.

In addition to its domestic growth, Dollarama also continues to benefit from its around 60% stake in Dollarcity, which is a Latin American value retailer. Dollarcity continues to expand rapidly, with 570 stores as of June 2024. This international exposure provides Dollarama with additional revenue streams and growth potential in high-growth markets outside its home market.

Is Dollarama stock a buy now?

DOL stock currently offers an annualized dividend yield of 0.3%. While this dividend yield may seem too low compared to other stocks, Dollarama’s main appeal lies in its consistent growth and strong capital appreciation. The company has focused on reinvesting profits to expand its operations, which has fueled its impressive stock performance over the years.

Dollarama’s current valuation might seem high after its over 50% year-to-date rise. Still, the company’s strong fundamentals and growth prospects suggest its stock could continue to perform well in the long term, giving it an ideal investment to consider now.