Dollarama (TSX:DOL): Does Strong Q2 Earnings Signal Undervalued Growth for This Canadian Retailer?

Dollarama (TSX:DOL) just released its second-quarter earnings, and investors are paying attention. The discount retailer posted clear gains in both sales and net income compared to last year, continuing an upward trend for its bottom line. The company’s diluted earnings per share rose from CA$1.02 to CA$1.16, highlighting management’s steady execution despite macroeconomic uncertainty. For shareholders, this momentum adds a confident note and brings renewed focus to how the market is valuing Dollarama after such results.

Looking more broadly, Dollarama’s strong earnings were not an isolated win. Over the past year, momentum has largely been in the company’s favour. Shares are up 37% and have climbed 5% in the past three months alone. Most recently, the company affirmed another quarterly dividend and completed a significant buyback round, underlining its commitment to returning capital to shareholders. These signals, along with consistent revenue and income growth, keep Dollarama at the forefront for investors considering opportunities in Canadian retail.

After this year’s momentum and the latest earnings beat, is Dollarama’s current share price undervaluing its growth, or has the market already priced in all the good news?

Most Popular Narrative: 4.8% Undervalued

According to community narrative, Dollarama is currently viewed as slightly undervalued based on analysts’ expectations for future growth and profitability. This view pulls together revenue projections, margin trends, and potential risks from the company’s ongoing expansion and operational strategies.

The company's aggressive international expansion, opening Dollarcity's first store in Mexico and acquiring Australia's largest discount retailer, unlocks new, large addressable markets. This positions Dollarama for multi-year top-line revenue growth through broader geographic and demographic exposure. Sustained consumer focus on value in the current environment of high cost of living and persistent inflation continues to drive higher transaction growth and steady demand for consumables in Canada and Latin America. These factors support robust revenue and same-store sales.

This call isn’t just about past performance. What's really fueling this optimistic price target? The answer lies in fast-moving geographic expansion, ambitious profit multipliers, and a bold bet that Dollarama can outpace its rivals and scale up into new markets. Curious about how aggressive growth plans and future profit expectations translate into that higher valuation? Discover the full financial story that’s driving bullish analyst conviction behind this fair value estimate.

Result: Fair Value of $196.73 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, challenges such as integrating new acquisitions or rising global competition could threaten Dollarama’s ambitious growth plans and test its resilience in new markets.

Find out about the key risks to this Dollarama narrative.

Another View: What Does Our DCF Model Say?

While analyst price targets see Dollarama as undervalued, our SWS DCF model tells a very different story. The model suggests the stock could be trading above its fair value. Which approach makes more sense for this business?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Dollarama for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Dollarama Narrative

If you want to verify the numbers for yourself or approach the analysis your own way, you can build a fresh narrative in just a few minutes. Do it your way.

A great starting point for your Dollarama research is our analysis highlighting 2 key rewards and 1 important warning sign that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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