Is Dollarama Stock a Buy?

Although Dollarama’s stock is expensive and has rallied by more than 40% over the last year, is it still worth buying for the long haul?

Daniel Da Costa

Author Bio Daniel joined The Motley Fool Canada in 2019 and brings experience in banking, investing, and financial analysis. Growing up as the son of a proprietary stock trader and educator, he developed an early interest in financial markets and a passion for helping Canadians improve their financial well-being. His work spans investment research, economic analysis, and econometric modelling, with a focus on understanding the broader forces that influence businesses, markets, and the economy. As an investor, Daniel looks for high-quality businesses with long-term growth potential, reliable income, and attractive valuations. Outside of finance, Daniel enjoys spending time with his family, playing hockey, running, and sailing. Areas of Expertise Investment research, economic analysis, econometric modelling, banking, financial analysis, business fundamentals, long-term investing, dividend investing, and company valuation. Favorite Investment Quote "It's far better to buy a wonderful company at a fair price than a fair company at a wonderful price." — Warren Buffett

Published December 10, 2024 8:45 pm EST

Over the last 12 months, Dollarama (TSX: DOL) has been one of the best stocks in Canada, earning investors a total return of more than 42% during that stretch.

However, despite its incredible performance over the last year, Dollarama stock has actually been growing at an impressive pace for several years now.

In fact, over the last five years, investors have earned a total return of 222.5%, which is a compound annual growth rate (CAGR) of 26.3%. Furthermore, over the last decade, it has earned investors a total return of 714%, which is a CAGR of 23.3%.

So, there’s no question that Dollarama is one of the best and most consistent stocks in Canada. However, because it’s well-known as such a high-quality investment, the stock trades at a significant premium.

So, let’s look at why Dollarama is such a high-quality stock and whether or not it’s worth buying today at this significant valuation.

Man holds Canadian dollars in differing amounts — Source: Getty Images

Dollarama is one of the best stocks in Canada due to its solid business model

There’s no question that Dollarama is a high-quality stock, especially to buy and hold for years due in large part to its business model.

The discount retailer business model is one that can provide resiliency and steady growth, especially in this day and age when consumers are consistently looking for ways to save money on their essential purchases in order to boost their discretionary income.

However, in addition to the discount retailer industry having a tonne of potential, Dollarama stock has also done an incredible job at capitalizing on the changing consumer behaviours.

For years, it has consistently expanded its operations, building out its footprint across Canada and strengthening its brand.

Therefore, Dollarama stock offers investors high quality and consistent growth potential coupled with defensiveness and resiliency, which is a unique and appealing combination.

Furthermore, in addition to its Canadian business, management has demonstrated it can find new avenues for growth with its investment in Dollarcity, a Latin American discount retailer, which continues to grow rapidly itself.

To get a real sense of why Dollarama is one of the best stocks on the market, though, you have to look into its numbers.

Dollarama’s financials are nothing short of impressive

Although Dollarama’s revenue and earnings were positively impacted by surging inflation and higher interest rates we saw over the past couple of years, it continues to grow at an impressive pace even with the economy normalizing.

In fact, analysts expect that for the current year (fiscal 2025, which ends January 31, 2025), Dollarama’s revenue will jump by 8.9%. Furthermore, analysts expect its normalized earnings per share (EPS) to increase by roughly 14%, which is another significant increase.

In addition, analysts predict another approximately 11% growth in normalized EPS next year as Dollarama continues to expand its operations year in and year out, regardless of the economic environment. In fact, in the past five years, its normalized EPS has increased at a CAGR of 16.3%.

Does Dollarama’s valuation make it a buy?

Despite the fact that Dollarama is one of the best and most consistent stocks you can buy and hold for the long haul, there’s no denying that the stock is expensive.

Currently, Dollarama trades for 32 times forward earnings, which is certainly expensive for most stocks. For a stock of Dollarama’s quality, though, it’s not that surprising.

Dollarama is easily one of the best stocks in Canada, not just for its growth potential but also for its reliability; therefore, it deserves a premium.

Not to mention, the significant premium shouldn’t matter too much if you are buying the stock for the long haul. After all, if you believe Dollarama is one of the best long-term investments in Canada that will continue to grow at an exceptional pace, then the investment should easily be worth it in just a few quarters from now.

Furthermore, as long as Dollarama keeps up its impressive performance, it should continue to warrant a premium for years to come.

So, although Dollarama stock is certainly expensive, it’s one of, if not, the best stocks you can buy in Canada. Therefore, as long as you plan to buy the stock and hold it for years, then it’s certainly worth buying today.