Amid falling interest rates, easing inflation, and solid September employment numbers in the United States, the Canadian equity markets are upbeat this year, with the S&P/TSX Composite Index rising around 14.9%. Meanwhile, the following three stocks have outperformed the broader equity markets this year and could continue their uptrend, given their solid underlying businesses and healthy growth prospects.
Source: Getty Images
Dollarama
Dollarama (TSX:DOL) has adopted a superior direct-sourcing model, strengthening its bargaining power and lowering intermediary expenses. Besides, its efficient logistics system allows it to offer various consumer products at attractive prices, thus enjoying healthy same-store sales even during challenging market conditions. After a 16.3% increase in the year-ago period, the company’s same-store sales grew 5.1% in the first two quarters of this fiscal year.
Meanwhile, Dollarama’s management has credited its compelling value and the breadth of its product offering for solid same-store sales as consumers continue to deploy their discretionary spending prudently in a challenging macro environment. Further, the company has expanded its store count by 58 units over the last four quarters to 1,583 as of July 28 (end of the second quarter). Amid these expansions and healthy same-store sales, the company’s sales and diluted EPS (earnings per share) grew by 8% and 20.1%, respectively. These solid performances have boosted the retailer’s stock price, which is trading 45.7% higher this year.
Further, Dollarama plans to expand its store count to 2,000 by 2031. Given its quick sales ramp-up and lower payback period of around two years, these expansions could boost its top and bottom lines. Further, the discount retailer owns a 60.1% stake in Dollarcity, a value retailer in Latin America. Dollarama also owns an option to increase its stake by 9.9% in Dollarcity by the end of 2027. Dollarcity plans to add around 480 stores over the next six years to increase its store count to 1,050 by the end of fiscal 2031. These expansion initiatives could boost Dollarama’s financials, thus driving its stock price.
Waste Connections
Waste Connections (TSX:WCN) is another top Canadian stock that has outperformed the broader equity markets, with returns of 24.5%. The waste solutions provider has reported impressive performance in the first six months, with its top line growing by 10.2%. Its solid operational execution, incremental acquisitions, and higher commodity values boosted its top line. Besides, its adjusted net income and adjusted EBITDA (earnings before interest, tax, depreciation, and amortization) grew by 19.5% and 15.6%, respectively. While its adjusted EBITDA margin stood at 32%, an improvement from 30.5% in the year-ago period.
Meanwhile, WCN has a solid pipeline of acquisition opportunities, with management expecting these acquisitions to contribute around $700 million to its annualized revenue this year. Amid these solid acquisition activities, management has increased its revenue and adjusted EBITDA guidance for this year. Further, the company is building several renewable natural gas and resource recovery facilities, which could become operational over the next few years. Given its solid underlying business, improved profitability, and healthy growth prospects, I believe WCN will continue outperforming in the coming quarters.
goeasy
Third on my list would be goeasy (TSX:GSY), which has returned 17.8% this year. The subprime lender generated $1.5 billion of loan originations in the first six months, expanding its loan portfolio to $4.1 billion. Driven by an expanding loan portfolio, the company’s top line grew 25% to $735 million, while its adjusted operating income grew by 35% to $297 million. Its efficiency ratio fell from 32.1% in the previous year’s period to 27.1%, indicating an improvement in the company’s ability to control its expenses relative to its revenue. Further, its adjusted EPS grew by 24.3% to $7.94.
Meanwhile, the central banks of Canada and the United States have slashed interest rates, which could boost economic activities and drive credit demand. Amid growing demand, goeasy is expanding its product offering, developing new distribution channels, strengthening its digital infrastructure, and venturing into new markets, which could boost loan originations and expand its loan portfolio. The company’s management projects its loan portfolio to grow around 50% to $6.2 billion by the end of 2026. Also, its operating margin could improve to 42% by 2026.
Considering its healthy growth prospects and an attractive NTM price-to-earnings multiple of 9.7, I am bullish on goeasy.
