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For years, Dollarama (TSX: DOL) has been a standout performer on the TSX, impressing investors with consistent growth and value creation. Its discounted retail business has not only thrived during economic expansions but has also demonstrated resilience during economic downturns, contributing to its impressive long-term performance. This analysis places Dollarama in focus within the context of TSX retail stocks, showcasing its resilience and success as a key player in the retail sector.
Recent Performance:
In 2023, amidst economic challenges and market headwinds, Dollarama stock has delivered a return of approximately 19.5%. Over the last five years, it generated a total return of over 200%, boasting a compounded annual growth rate (CAGR) of 24.9%. Looking further back, the stock achieved a remarkable 579% return in the last decade, growing at a CAGR of 21.1%, significantly outperforming the TSX, which recorded a return of 54.7% over the same period.
Factors Driving Growth:
Dollarama's growth is attributed to several factors. The consistent demand for discounted goods, especially essential items, has been a key driver. Economic downturns can create habits that endure, contributing to sustained consumer interest in value-focused retail. Additionally, Dollarama's strategic merchandising, including price adjustments and new product offerings, has enhanced margins and increased items purchased per store visit.
Financial Performance:
Dollarama's financials underscore its growth trajectory, with sales soaring from $1.8 billion to over $5 billion in the last decade. Adjusted earnings per share (EPS) surged from $0.50 to $2.76 and are anticipated to increase by 25% to $3.44 this year.
Valuation:
Dollarama's valuation is primarily assessed through its Price-to-Earnings (P/E) ratio. Analysts project a normalized EPS of $3.87 for fiscal 2025, and historical P/E ratios suggest a potential share price ranging from $85 to $116 in the near term. Looking ahead to fiscal 2026, with an expected 12% EPS growth to $4.34, Dollarama's stock could be valued between $95 and $130 by the end of 2024, considering its historical P/E range.
Conclusion:
Predicting Dollarama's exact stock performance in 2024 remains challenging due to uncertainties in its actual growth and market dynamics. However, its consistent operational and profitability growth, coupled with defensive operations, positions Dollarama as one of the top stocks to consider for long-term investment. While market conditions and P/E ratios will influence its near-term performance, Dollarama's historical track record makes it a compelling choice for investors seeking growth potential and stability.
