Over the last decade, there’s no question that one of the best stocks on the TSX has been Dollarama (TSX:DOL), the discount retailer and ultra-popular growth stock.
This is unsurprising over the last few years, given the economic environment and surging living costs, forcing more consumers to review their budgets and look for lower-cost ways to buy the essential goods they need.
However, as impressive as Dollarama has been in recent years, what’s even more impressive is the consistent growth that Dollarama has displayed, going back more than 10 years and throughout all different economic environments.
It’s one thing for the stock to grow when the economy weakens, and consumers are incentivized to shop at discount retailers. It’s another thing to grow the business rapidly and consistently when the economy is growing quickly, and consumers have more money in their pockets.
So, after Dollarama stock has gained more than 44% over the last year and trades at more than $120 a share, let’s look at when and if its stock can reach $150.
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Can Dollarama stock reach $150?
Roughly 11 months ago, Dollarama stock was trading at around $88 a share, and I asked if it could reach $100 by 2024.
I knew it had the potential due to its impressive merchandising, the economic environment and the growth premium it tends to trade at. However, as is the case with any stock on the market, predicting how it might trade in the near term is very difficult, so it was never a given that Dollarama would continue its sky-high growth.
Fast forward just under a year, and not only has Dollarama surpassed $100, it’s now trading above $120, and its 52-week high is just shy of $130, thanks largely to its consistent ability to generate above-average growth.
I’ve mentioned before that over the last year, its stock is up a whopping 44%. Well, over the last decade, it’s up over 720%. That’s a compounded annual growth rate (CAGR) of more than 23.4%.
And while some companies can grow rapidly due to investors’ speculation, Dollarama’s growth has all been earned.
In fact, over the last decade, its sales have grown at a CAGR of 11%; meanwhile, and more importantly, its normalized earnings per share (EPS) have grown at a CAGR of 19.9%.
This shows not just how fast Dollarama stock can grow its sales but also how it can improve its margins at the same time. The more profit it generates for shareholders, the more its share price will increase.
Where is the discount retailer going now?
With the Bank of Canada now starting to reduce interest rates and the Federal Reserve set to follow suit in the U.S. after inflation has cooled down considerably, investors and analysts are concerned with how much more growth potential Dollarama might have in the near term.
However, as has been the case in the past, even with an improving economy, Dollarama still has the potential to expand its operations and improve profitability for shareholders.
Furthermore, analysts expect Dollarama stock to grow its sales another 8.1% this year and over 6% next year. They also expect it to improve its normalized EPS by over 13% this year and another 11% next year.
While these figures are both lower than its growth rate over the last 10 years, it still has more growth potential than most stocks on the market, especially for such a large, well-established, and reliable company.
Plus, when you look at its expected EPS over the next four quarters of $4.24 and consider its historical range for forward price-to-earnings (P/E) ratio, it’s certainly possible that Dollarama could continue growing to more than $150 a share in the coming months.
Right now, it trades at a forward P/E ratio of 29.4 times, above its 10-year average of 25.8 times. However, Dollarama has traded as high as 34.6 times its forward earnings in recent years, and 34.6 times its expected earnings over the next four quarters would give it a share price of roughly $146.70, just shy of $150.
Therefore, while Dollarama stock certainly trades at a premium, it’s one that is well deserved. So, if you’re considering this high-quality stock, it’s essential to buy and hold for the long haul.
