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?

| More on:
Man holds Canadian dollars in differing amounts

Source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

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%.

Created with Highcharts 11.4.3Dollarama PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

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.

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.

Should you invest $1,000 in BCE right now?

Before you buy stock in BCE, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and BCE wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $20,697.16!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 29 percentage points since 2013*.

See the Top Stocks * Returns as of 3/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Investing

A shopper makes purchases from an online store.
Tech Stocks

Buy the Dip on the Return of Recession Stocks?

If a recession comes back, there are some stocks that could fair well afterwards. And this is one of the…

Read more »

RRSP Canadian Registered Retirement Savings Plan concept
Retirement

Here’s the Average Canadian TFSA and RRSP at Age 60

Many Canadian retirees have tens of thousands invested in ETFs like the iShares S&P/TSX 60 Index Fund (TSX:XIU).

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Here’s Exactly How a $20,000 TFSA Could Potentially Grow to $200,000

Index funds like the iShares S&P/TSX Capped Composite Index (TSX:XIC) are tax free in a TFSA.

Read more »

dividend growth for passive income
Investing

5 Canadian Growth Stocks to Buy and Hold for the Next 15 Years

These Canadian stocks have tremendous long-term growth potential, making them five of the best investments you can buy and hold…

Read more »

Man holds Canadian dollars in differing amounts
Stocks for Beginners

Cash Is King? Think Again During Today’s Market Dip

Sure, cash is great, but during a market dip investors may want to consider using some of the cash to…

Read more »

grow money, wealth build
Stocks for Beginners

How I’d Build a $15,000 Portfolio for Income and Growth With Canadian Value Stocks

Looking for some Canadian value stocks to buy without breaking the bank? Here's a trio to consider buying this month.

Read more »

Dividend Stocks

How I’d Invest $6,000 in Canadian Real Estate Stocks to Build Lasting Wealth

Canadian REITs on sale! See how grocery-anchored retail properties offering 9% yields could turn $6,000 into lasting wealth despite US…

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Investing

3 Canadian Value Stocks I’d Hold in My TFSA Through Market Volatility

Given their healthy growth prospects and discounted stock prices, these three value stocks would be ideal additions to your TFSA.

Read more »