Investing in growth stocks can be a powerful way to build wealth, even with a relatively small sum like $1,000. One of the main reasons growth stocks are appealing is the ability to turn modest investments into substantial returns. For someone investing $1,000, this can mean a much larger payoff compared to lower-risk dividend stocks or bonds. However, this growth potential comes with a trade-off: higher volatility. Growth stocks are often more susceptible to market sentiment, making it crucial for investors to have a long-term mindset and be prepared to ride out the ups and downs. This top option is an exception.
Dollarama stock
Enter Dollarama (TSX:DOL), a quintessential example of a growth stock with the potential to make a significant impact on your portfolio. As Canada’s largest dollar store chain, Dollarama carved out a niche for itself by providing affordable products to consumers across the country. Its business model thrives during both economic booms and downturns, as people often turn to discount retailers during uncertain times. This resilience has translated into strong financial results, making Dollarama stock a standout growth opportunity on the TSX.
Let’s start with the numbers. In its most recent fiscal year, Dollarama reported a 16.1% increase in sales, reaching $5.9 billion, up from $5.1 billion the previous year. Its earnings growth was even more impressive, with a year-over-year increase of 16.3%. Revenue growth of 7.4% in the latest quarter further underscores the ongoing strength of its business.
Dollarama’s stock price performance mirrors its financial success. Over the past year, Dollarama stock has climbed by a stunning 47.2%. With a beta of 0.54, the stock has delivered these returns with relatively low volatility, a rarity among growth stocks. For investors with $1,000 to allocate, this means a combination of impressive returns and less stomach-churning price swings.
What’s in store
Looking ahead, Dollarama’s future is brimming with promise. The company has been aggressive in its expansion efforts, opening 65 net new stores in Fiscal 2024, bringing its total to 1,551 locations. Dollarama isn’t just focused on domestic growth, it has also expanded internationally by increasing its stake in Dollarcity, a Latin American retailer, to 60.1%. This strategic move not only diversifies its revenue streams but also positions the company to tap into high-growth emerging markets.
Financially, Dollarama is a well-oiled machine. Its operating margin of 25.6% and profit margin of 17.9% are impressive, particularly in the retail sector, where margins are often razor-thin. The company’s return on equity (ROE) stands at a staggering 156.5%.
Another factor that makes Dollarama a compelling choice for growth-focused investors is its ability to adapt and innovate. The company has been rolling out self-checkout systems and investing in its supply chain to improve efficiency and customer experience. These initiatives not only lower costs but also enhance scalability, allowing Dollarama to maintain its competitive edge.
Foolish takeaway
While Dollarama stock is primarily a growth stock, it also offers a small dividend yield of 0.3%, providing a modest income stream while you wait for capital appreciation. This is a rarity among growth stocks, which typically forgo dividends altogether. The company’s low payout ratio of 8.4% ensures that most of its profits are reinvested into growth initiatives, striking a balance between rewarding shareholders and fueling future expansion.
For an investor with $1,000, Dollarama stock represents a golden opportunity to participate in a high-growth story. Its proven track record of financial success, strategic expansion plans, and robust market position make it a standout option on the TSX. The company’s resilience, even during challenging economic times, adds an extra layer of confidence for investors. Altogether, growth stocks like Dollarama stock offer the potential for outsized returns, especially when you invest early and give your investment time to compound.
