After a subdued last month, the Canadian equity markets are upbeat, with the S&P/TSX Composite Index rising 5.1% this month. Last week, the Labor Department announced that the United States’s consumer price index fell 0.1% in June compared to the previous month. It was the first month-on-month decline over the last four years. The Commerce Department’s Census Bureau stated that retail sales in the United States remained unchanged in June, against economists’ prediction of a 0.3% decline.
The signs of easing inflation and better-than-expected retail sales have increased investors’ hopes of earlier interest rate cuts by the Federal Reserve, thus driving the S&P/TSX Composite Index higher. Amid improving investors’ sentiments, you can buy the following two top-performing stocks without hesitation.
goeasy
goeasy (TSX:GSY) is a Canadian subprime lender that has delivered 21.7% returns this year, outperforming the broader equity markets. Its solid performance, with record loan originations during the March-ending quarter, drove its stock price. During the quarter, the company witnessed stable credit and payment performance. The record loan originations of $686 million expanded its loan portfolio to $3.85 billion.
Amid the expansion of the loan portfolio, its revenue and adjusted EPS (earning per share) grew by 24%. Its net charge-off rate stood at 9.1%, within the company’s guidance of 8.5-9.5%. Further, the company strengthened its balance sheet by raising $500 million through senior unsecured notes.
Meanwhile, goeasy continues expanding its product offerings, strengthening its distribution channels, creating a single digital point of interaction to enhance customer experiences, and expanding its presence geographically to drive its financials. The company’s loan portfolio reached $4 billion in June, while the management projects its portfolio to surpass $6 billion in 2026, representing a 50% growth. The management has tightened its credit tolerance levels and adopted next-gen credit models, which could lower its default rates and drive profitability.
Furthermore, goeasy has rewarded its shareholders by raising its dividend at an annualized rate of around 30% for the last 10 years, with its forward yield at 2.46%. It trades at an attractive NTM (next-12-month) price-to-earnings multiple of 10.7, making it an excellent buy.
Dollarama
Dollarama (TSX:DOL), a discount retailer, has outperformed the broader equity market this year with returns of 34.3%. Its impressive first-quarter performance and healthy growth prospects have increased its stock price. Despite the challenging macro environment, the company posted a healthy same-store sales growth of 5.6% during the quarter due to its compelling value offerings. Its top line and diluted EPS grew by 8.6% and 20%, respectively.
Meanwhile, given its value offerings and expansion plans, I expect Dollarama’s uptrend to continue. The company plans to open over 430 stores to increase its store count to 2,000 by fiscal year 2031. Given its capital-efficient business model, quick sales ramp-up, and short pay-back period, these expansions could boost its top and bottom lines.
Further, Dollarama has also raised its stake in Dollarcity, which operates 547 discount retail stores in Latin America, from 50.1% to 60.1%. Meanwhile, Dollarcity plans to open over 500 stores over the next six years to increase its store count to 1,050 by fiscal 2031. Given Dollarcity’s expansion plans and Dollarama’s increased stake, I expect Dollarcity’s contribution to Dollarama to rise in the coming years.
Furthermore, the company has rewarded its shareholders by repurchasing shares worth $6.5 billion since fiscal 2013 and has paid dividends worth $649 million since fiscal 2012. Considering all these factors, I believe Dollarama will continue outperforming the broader equity markets.
