With the president of the United States intensifying the trade war by threatening to impose tariffs on Canada, the European Union, and several other countries, I expect the equity markets to be volatile in the coming weeks. Therefore, investors should look to strengthen their portfolios with quality stocks that operate solid businesses, offer consistent returns, and have healthy growth prospects.
Against this backdrop, I believe Dollarama (TSX:DOL), which has delivered impressive returns of over 650% at an annualized rate of 22.4% over the last 10 years, would be an ideal long-term investment. Meanwhile, let’s examine its historical performance and growth prospects.
Dollarama’s historical financial performance
Dollarama operates discount retail stores across Canada. Through its superior direct sourcing and efficient logistics, the company is able to offer various consumer products at attractive prices, thereby enjoying healthy same-store sales even during a challenging macro environment. Additionally, it has expanded its footprint from 1,095 stores in 2017 to 1,638 at the end of the first quarter of fiscal 2026. Supported by solid same-store sales and store network expansion, the Montreal-based discount retailer has grown its revenue at an annualized rate of 10.1% for the last eight years.
Along with sales growth, its rising gross margins, improving operating efficiencies, and increasing contribution from Dollarcity have boosted its net income, which has grown at a 13.5% CAGR (compound annual growth rate) over the last eight years. Dollarama owns 60.1% of Dollarcity, which has expanded its store count from 13 in 2013 to 644 by the end of fiscal 2025. These expansions have increased Dollarcity’s contribution to Dollarama’s net income. Moreover, Dollarama’s EBITDA (earnings before interest, tax, depreciation, and amortization) margin has expanded from 23.7% in 2017 to 33.1%. These solid financial performances have boosted its stock price. Now, let’s look at its growth prospects.
Dollarama’s growth prospects
Dollarama continues to expand its footprint and projects to reach a store count of 2,200 by the end of fiscal 2034. Given its capital-efficient growth model, lower network maintenance expenses, quick sales ramp-up, and lower average payback period, these expansions could boost both its top and bottom lines. Additionally, the company is venturing into the Australian retail market by acquiring The Reject Shop, which operates 390 stores across the country. Dollarama has signed the agreement to acquire The Reject Shop for $233 million and could close the deal by the end of this year.
Moreover, Dollarcity continues to expand its presence in Latin America and has planned to increase its store count to 1,050 by the end of the fiscal year 2031. Meanwhile, Dollarama can also increase its stake in Dollarcity to 70% by exercising its option by 2027. These growth initiatives could support Dollarama’s financial growth in the coming years, therefore making its growth prospects healthy.
Investors’ takeaway
With returns of over 35%, Dollarama has outperformed the broader equity markets this year. These solid returns have increased its next-12-month (NTM) price-to-sales and NTM price-to-earnings multiples to 7.6 and 40.6, respectively, which looks expensive. However, given their solid underlying business, healthy financial growth, and high growth prospects, I believe long-term investors can accumulate the stock to earn superior returns in the long term. Additionally, the company has rewarded its shareholders by raising its dividends 14 times since 2011.
