Is Dollarama a Buy?

Dollarama stock isn’t just surviving; it’s thriving for Canadian investors.

Amy Legate-Wolfe

Amy became interested in investing in 2018 after having her first daughter. After receiving a masters degree in journalism from Western University, she became frustrated that the finance industry remained a confusing place for Canadians like her: new parents, millennials, and other young people who needed to understand their finances. Now, Amy focuses on tech companies and renewable energy for growth opportunities, coupling that with long-term investing strategies and equities. She also provides investors with a daily newsletter, Canada Stock Digest, for daily market updates. Before joining Motley Fool Canada, she wrote for major news organizations including HuffPost, CTVNews.ca, and CBC. When she’s not researching investing strategies, Amy’s time is pretty much monopolized by her two wild daughters, but in what little spare time she has she loves to do yoga, go on walks with her dog, and travel with her husband. Follow Amy on LinkedIn and Canada Stock Digest. Favorite Investment Quote: “October: This is one of the particularly dangerous months to speculate in stocks. The others are July, January, September, April, November, May, March, June, December, August and February.” – Mark Twain

Published August 22, 2025 11:45 am EDT

| More on: DOL

Dollarama (TSX:DOL) stock has been on a tear, and investors are asking the obvious question: Is it still a buy? Trading near all-time highs around $194, shares of Canada’s top discount retailer surged almost 43% over the past year. That kind of move would be eye-catching in any sector, but in defensive retail it’s even more impressive. For long-term investors, the Canadian stock’s consistent execution and new global growth levers make it worth a closer look.

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What happened?

The past year has shown Dollarama’s business model at its best. As inflation pressured household budgets, Canadians turned to lower-cost retailers for consumables and seasonal products. Dollarama delivered an 8.2% sales increase in its latest quarter, hitting $1.52 billion. Comparable sales rose nearly 5%, driven mostly by more transactions, showing customers continue to visit frequently. That’s on top of 5.6% growth in the same quarter last year, a strong two-year streak of steady demand. Earnings told the same story, jumping 27% to $0.98 per share as margins improved from lower logistics costs.

Beyond Canada, Dollarama has been quietly expanding its footprint in Latin America through its Dollarcity investment. That venture keeps adding stores, now past 640 across Colombia, Guatemala, El Salvador, and Peru. Sales there climbed more than 12% in the last reported period, and Dollarama’s stake has been paying off with earnings nearly doubling year over year. The Canadian stock also just completed its acquisition of The Reject Shop in Australia, the country’s largest discount retailer. With more than 390 stores across Australia, this deal marks Dollarama’s first step outside the Americas, and it could be transformative if integration goes smoothly.

Back home, Dollarama isn’t slowing down. It added 22 new Canadian stores last quarter, bringing the total to over 1,630. Management plans 70 to 80 openings this year, part of a long-term push to saturate the country. Consumables remain the traffic driver, but seasonal goods are helping push average basket sizes higher. The Canadian stock’s focus on value pricing at fixed points up to $5 keeps it competitive, while efficient sourcing helps protect margins even as costs rise.

Considerations

Investors should note that Dollarama’s profitability is remarkable compared to its peers. Operating margins sit above 25% and net margins at nearly 19%, far stronger than many global discount chains. Returns on equity are eye-popping at over 140%, though that’s partly due to the Canadian stock’s heavy use of debt. Dollarama carries about $4.7 billion in debt, which looks large relative to its $241 million in cash. Still, the strong free cash flow of $1.1 billion annually provides room to service obligations, pay dividends, and invest in expansion.

Valuation is the sticking point. With a trailing price-to-earnings (P/E) multiple of 44 and a forward P/E near 36, Dollarama trades at a premium. That’s rich for a retailer, even one growing earnings close to 27% year over year. Investors are clearly paying up for reliability, margin strength, and international expansion. The dividend yield remains modest at about 0.22%, so this isn’t an income play; it’s about growth and defensive stability.

The risks to watch are clear. Competition in discount retail is always fierce, and while Dollarama dominates in Canada, overseas markets like Australia bring new challenges. Integrating The Reject Shop while keeping Canadian momentum will test management. High debt leaves less flexibility if sales stumble, and valuations leave little margin for error. Even so, Dollarama has shown an ability to navigate headwinds, from inflation to supply chain costs, while continuing to grow.

Bottom line

So, is Dollarama a buy? For investors seeking stability paired with growth potential, the answer leans yes, though with caution on price. The Canadian stock may not be cheap, but quality rarely is. If earnings continue to climb at a double-digit pace and international moves deliver, today’s valuation could end up looking justified. Long term, Dollarama remains one of the most compelling names on the TSX for those betting on the enduring appeal of value retail.