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Dollarama (TSX:DOL) stands out as a top-performing TSX retail stock that has generated substantial wealth for long-term investors. Over the past decade, an initial investment of $10,000 in Dollarama would have grown to approximately $71,370, translating to annualized returns of 21.7%. This remarkable performance significantly outpaces the broader Canadian stock market, which delivered annual returns just above 8% during the same period, turning a $10,000 investment into around $21,750.
In the last 12 months alone, Dollarama (TSX:DOL) has seen a robust climb of approximately 19%, outperforming the market's 3% upside. The company's impressive growth and market dominance contribute to its appeal as an investment. Dollarama essentially operates as a monopoly in the Canadian value retail sector, with a strategic selection of consumable products, general merchandise, and seasonal items, available both in-store and online.
The company's sales per share have shown a compound annual growth rate (CAGR) of nearly 15.5% over the past decade, driving operating income per share growth at a CAGR of 19%. Earnings per share have similarly grown at a rapid pace, just under 19% per year. With 1,541 stores across Canada and plans to expand to about 2,000 stores, Dollarama aims to capitalize on its success.
Despite trading at about 28.5 times its adjusted earnings at $97.14 per share, Dollarama's high price-to-earnings ratio reflects investor expectations of continued high growth. Analyst consensus estimates project an earnings per share growth rate of 16.9% per year over the next three to five years, indicating above-average growth prospects. The current stock price aligns closely with the 12-month analyst consensus target, suggesting fair valuation.
Dollarama's defensive business model, characterized by strong operations and the ability to drive sales and profits during economic downturns, adds to its appeal. The company weathered the challenges of the 2020 pandemic year, demonstrating resilience. As Dollarama plans to expand its store count in the foreseeable future and continues to operate a defensive and successful business, it remains an attractive investment option.
While the stock may have a relatively high multiple, investors adopting a long-term perspective may find opportunities to buy on dips, leveraging commission-free trading platforms like Wealthsimple to build a position gradually. In the words of Warren Buffett, "It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price," making Dollarama an enticing consideration for investors.
