3 Stocks to Bet Against the “Retail Apocalypse”

These three stocks, including Dollarama Inc. (TSX:DOL), prove that the death of retail is overblown.

| More on:

Retail is dead.

You’ve probably heard that refrain dozens, if not hundreds of times over the past several years. The thinking is that all shopping is moving online, and that traditional brick-and-mortar retailers simply can’t compete.

It’s tough to disagree with that assessment. High-profile bankruptcies like Circus City, Radio Shack, and Blockbuster reinforce that belief. And e-commerce gorilla Amazon doesn’t look like it’s slowing down anytime soon.

But here’s the thing: retail isn’t dead. It’s simply changing — as it always has.

Many decades ago, it was all about department stores in the city. After that, big suburban shopping malls were all the rage. And in the 90s and 2000s, big-box stores dominated the retail scene.

In other words, retailers have always needed to adapt in order to survive. Today, e-commerce poses the biggest threat. But make no mistake about it: there are definitely retailers out there that are not only surviving, but thriving in 2018.

You just need to find them.

To help you do that, here are three retail stocks that have absolutely thumped the TSX over the past year. Additionally, they’ve all grown their revenue at a brisk clip in recent years.

Without further ado:

Company 1-Year % Return 3-Year Revenue % Growth
Aritzia (TSX:ATZ) 29% 41%
Dollarama (TSX:DOL) 22% 30%
MTY Food Group (TSX:MTY) 30% 99%

Just a word of caution: these stocks aren’t formal recommendations. Instead, they’re ideas for you to do further due diligence on.

With that said, discount retailer Dollarama really catches my eye.

Dollar days

Dollarama’s approach to battling the Amazonian beast is simple: it sells small things at cheap prices. Specifically, it provides everyday consumer products at low, fixed price points — generally $5 or less. And with millions of Canadians being both financially and time-strapped these days, providing cheap stuff, as well as convenience, is a recipe for prolonged success.

While growth has been slowing of late, Dollarama’s revenue, net income, and free cash flow growth over the past three years is still impressive.

In the last quarter, Dollarama even managed to post sales growth of 7.3% in the face of less-than-ideal shopping weather.

“Despite lighter than usual summer assortment sales in the first quarter due to poor weather, we delivered another solid performance and our underlying assumptions for the full year remain unchanged,” said CEO Neil Rossy. “We are also pleased with the tangible results of our continued focus on cost control and productivity improvements.”

But here’s the best part for conservative investors: management shares the wealth. The company has grown its modest dividend by nearly 200% over the past five years, all while buying back boatloads of stock. Over the last 12 months, Dollarama has repurchased $640 million worth of shares.

Of course, that kind of quality and shareholder-friendliness comes at a price. Currently, Dollarama shares trade at forward P/E of 33. That’s steep on the surface, but fellow Fool Mat Litalien makes a good case that it’s even more expensive when you factor in Dollarama’s slowing growth.

But valuation aside, Dollarama remains a great company that proves retail isn’t dead. And with enough of a pullback, it’ll be a great investment once again.

Fool on.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Brian Pacampara owns no position in any of the companies mentioned. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. David Gardner owns shares of Amazon. The Motley Fool owns shares of Amazon and MTY Food Group. MTY Food Group is a recommendation of Stock Advisor Canada.

More on Investing

Canadian dollars in a magnifying glass
Dividend Stocks

3 High-Yield Dividend Stocks That Are Screaming Buys Right Now

Are you looking for great income stocks? Here's a trio of high-yield dividend stocks that pay insane yields right now.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Bank Stocks

Best Stock to Buy Right Now: TD Bank or Manulife Financial?

Manulife continues to see momentum in its business and stock price, while TD Bank stock remains down and out.

Read more »

cloud computing
Tech Stocks

3 No-Brainer Tech Stocks to Buy With $1,000 Right Now

These three Canadian tech stocks could be among the best growth opportunities in the market right now.

Read more »

Piggy bank with word TFSA for tax-free savings accounts.
Dividend Stocks

Transform a $5,000 TFSA Into a $50,000 Retirement Nest Egg

The TFSA is a powerful tool that can grow a small investment into a substantial retirement nest egg over time.

Read more »

Canadian Dollars bills
Metals and Mining Stocks

2 Cheap Canadian Stocks Under $20 to Buy This November

Cheap TSX stocks such as Endeavour Silver are trading at an attractive valuation in November 2024.

Read more »

happy woman throws cash
Tech Stocks

3 Growth Stocks That Could Be Long-Term Wealth Creators

These three growth stocks aim to grow their financials at a higher rate than the industry average, thus delivering superior…

Read more »

how to save money
Bank Stocks

This 5.9% Dividend Stock Pays Cash Every Month

First National Financial (TSX:FN) has a 5.9% yielding dividend that is paid out monthly.

Read more »

gift is bigger than the other
Investing

The Best Canadian Stocks to Buy With $5,000

These Canadian companies have solid growth prospects and the ability to deliver profitable growth even at a large scale.

Read more »