Dollarama (TSX:DOL) has been a consistent performer – that almost seems surprising, given that the stock just seems to never go down. Whether the markets are doing well or poorly, the retailer continues to perform well. But, is that the case forever? Let’s see if the stock can keep it up through 2025.
Into earnings
Dollarama and its recent earnings solidify its reputation as a reliable retail stock. For the second quarter of fiscal 2025, Dollarama reported sales of $1.6 billion, marking a 7.4% increase year over year. Comparable store sales grew by 4.7%, a strong follow-up to the 15.5% growth achieved in the same period last year. Earnings per share (EPS) also impressed, rising to $1.02, exceeding analyst expectations of $0.97. This consistent growth showcases the company’s ability to adapt and thrive in challenging market conditions.
Looking at its past performance, Dollarama has been a standout in the retail sector. Over the last year, the stock has climbed nearly 46%, significantly outperforming broader market benchmarks. The company’s revenue for the trailing 12 months stands at $6.1 billion, with a net income of $1.1 billion. Its profit margin of 17.9% and operating margin of 25.6% highlight its efficiency and strong profitability.
From a financial health perspective, Dollarama demonstrates robust cash flow generation, with operating cash flow at $1.6 billion and levered free cash flow at $942.6 million. While its total debt of $4.6 billion results in a high debt-to-equity ratio of 391.2%, the company’s ability to generate significant cash flow reduces concerns about its leverage. This balance between risk and performance underscores its resilience in a competitive market.
Showing strength
Dollarama’s dividend policy is another bright spot for investors. Though the forward dividend yield is modest at 0.26%, the payout ratio of 8.4% leaves ample room for future increases. This disciplined approach to dividend payments ensures the company retains enough capital for growth initiatives while rewarding shareholders. For investors seeking stability with a touch of income, this combination is appealing.
Analysts remain optimistic about Dollarama stock’s prospects. Recently, Royal Bank of Canada raised its price target for the stock from $147 to $160, a reflection of confidence in the company’s growth trajectory. Such endorsements align with Dollarama’s strong fundamentals and its ability to capture market share in a value-driven retail landscape.
The company’s growth strategy also bolsters its investment case. Dollarama plans to open 60 to 70 new stores in the next fiscal year, reinforcing its presence in the Canadian market. Furthermore, its increased stake in Latin American retailer Dollarcity signals a strategic move to diversify revenue streams and capitalize on emerging market opportunities. This expansion beyond Canadian borders showcases a forward-looking approach to growth.
Some considerations
Despite its many strengths, the stock’s valuation metrics suggest a premium price. With a trailing price/earnings (P/E) ratio of 37.3 and a forward P/E of 27.1, Dollarama stock trades at higher multiples than many of its peers. However, these valuations reflect the market’s expectations for continued earnings growth, which the company has consistently delivered.
Potential risks include Dollarama’s high debt levels and the broader challenges facing the retail sector, such as shifting consumer preferences and economic uncertainties. However, the company’s strong track record and operational efficiency mitigate these concerns to some extent.
Bottom line
Altogether, Dollarama’s robust financial performance, strategic expansion efforts, and market-leading position make it a compelling stock for 2025. While its premium valuation and debt levels may give some investors pause, its consistent growth and strong fundamentals outweigh these concerns. For those looking to add a reliable retail stock to their portfolio, Dollarama stock is a solid buy with promising prospects.
