Stock Analysis

Those who invested in Dollarama (TSE:DOL) five years ago are up 70%

  •  Updated
TSX:DOL
Source: Shutterstock

Stock pickers are generally looking for stocks that will outperform the broader market. Buying under-rated businesses is one path to excess returns. To wit, the Dollarama share price has climbed 67% in five years, easily topping the market return of 16% (ignoring dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 35% in the last year , including dividends .

So let's investigate and see if the longer term performance of the company has been in line with the underlying business' progress.

However if you'd rather see where the opportunities and risks are within DOL's industry, you can check out our analysis on the XX Multiline Retail industry.

There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.

During five years of share price growth, Dollarama achieved compound earnings per share (EPS) growth of 13% per year. This EPS growth is higher than the 11% average annual increase in the share price. Therefore, it seems the market has become relatively pessimistic about the company.

The company's earnings per share (over time) is depicted in the image below (click to see the exact numbers).

earnings-per-share-growth
TSX:DOL Earnings Per Share Growth September 27th 2022

We know that Dollarama has improved its bottom line lately, but is it going to grow revenue? If you're interested, you could check this free report showing consensus revenue forecasts.

What About Dividends?

When looking at investment returns, it is important to consider the difference between total shareholder return (TSR) and share price return. The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. So for companies that pay a generous dividend, the TSR is often a lot higher than the share price return. We note that for Dollarama the TSR over the last 5 years was 70%, which is better than the share price return mentioned above. This is largely a result of its dividend payments!

A Different Perspective

It's good to see that Dollarama has rewarded shareholders with a total shareholder return of 35% in the last twelve months. That's including the dividend. That's better than the annualised return of 11% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It's always interesting to track share price performance over the longer term. But to understand Dollarama better, we need to consider many other factors. For instance, we've identified 2 warning signs for Dollarama (1 is significant) that you should be aware of.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.

Valuation is complex, but we're helping make it simple.

Find out whether Dollarama is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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About TSX:DOL

Dollarama

Dollarama Inc. operates a chain of dollar stores in Canada.

The Snowflake is a visual investment summary with the score of each axis being calculated by 6 checks in 5 areas.

Analysis AreaScore (0-6)
Valuation1
Future Growth3
Past Performance5
Financial Health2
Dividends0

Read more about these checks in the individual report sections or in our analysis model.

Solid track record with moderate growth potential.