There are very few Canadian stocks that combine growth, consistency, and resilience the way that Dollarama (TSX:DOL) does. Over the years, the company has proven that a simple, well-executed business model can be incredibly powerful when it’s paired with disciplined expansion and strong cost control.
Dollarama isn’t just a retailer that performs well when consumers are under pressure. It’s also a company that continues to grow even when the economy is strong. That’s what separates it from most other defensive stocks. It doesn’t rely on one type of environment to succeed. Instead, it benefits from scale, brand recognition, and a value proposition that keeps customers coming back year after year.
That’s also why Dollarama has earned such an impressive long-term track record. The company has consistently grown revenue, expanded margins, and opened new locations without taking unnecessary risks.
The one thing that keeps Dollarama from being a no-brainer for every investor is its valuation. Dollarama has consistently traded at a steep growth premium, and today that premium is essentially as high as it’s ever been.
And while it’s natural for investors to hesitate when a stock trades near all-time highs, operationally, Dollarama continues to execute at a level that justifies that premium.
So, if you’re thinking about adding Dollarama to your portfolio, here’s where the stock could be in three years.
What could drive Dollarama’s growth over the next three years?
Although Dollarama has been one of the most impressive and consistent growth stocks over the last decade, domestically, it still has room to grow.
The company continues to open new stores every year, and same-store sales growth has remained strong thanks to steady demand and pricing discipline. Even in a mature market, Dollarama has shown it can increase traffic and basket size without sacrificing margins.
However, in addition to its domestic growth potential, Dollarama also has a ton of opportunity to expand its business internationally.
Already, its investment in the Latin American discount retailer, Dollarcity, has been growing rapidly, and now Dollarama has also expanded its presence to Australia.
Furthermore, the fact that Dollarama is not just expanding internationally but using its expertise to improve the operations of these businesses creates a ton of potential over the long haul.
Where could Dollarama stock be in three years?
With Dollarama continuing to expand its operations both in Canada and internationally, the stock still has plenty of potential to move higher over both the short and long term. With that said, trying to predict exactly where the share price will land isn’t as straightforward as it might seem.
Even if Dollarama keeps executing and growing its business, broader market conditions and the stock’s valuation multiple will still play a role in how it trades.
Over the last three years, Dollarama has traded as high as roughly 42 times forward earnings and as low as about 25 times. Today, it’s sitting near the high end of that range at roughly 40.5 times forward earnings.
Looking ahead three years, analyst estimates suggest forward earnings of around $6.50 to $7 per share, up from roughly $4.67 today. That implies earnings growth of around 13% annually, which lines up with Dollarama’s historical performance.
So, if the stock were to maintain a similar valuation multiple as today, around 40 times, that would put the share price somewhere in the $260 to $280 range three years from now.
And while that’s a compelling return in just three years, the risk for investors is that the valuation premium comes down or earnings growth slows. Those are real risks, especially given how expensive the stock already is. However, at the same time, Dollarama has demonstrated for years now that it can execute in just about any environment.
In fact, there are very few economic backdrops that truly derail Dollarama’s business. If anything, tougher conditions often work in its favour.
So, although Dollarama is expensive and valuation risk exists, considering its reliability and long-term growth potential, it remains one of the highest-quality stocks to buy and hold for the long haul.
