How I Turned an Observation at Dollarama into a 6-Year Growth Story

It was 2018 when Dollarama’s stock price tumbled from $55 to $35. The reason? The company missed its sales revenue expectations, triggering a dramatic investor reaction and a steep plunge in its stock price. Wall Street can be ruthless when expectations aren’t met, but to me, this was a golden opportunity. I decided to take the plunge and invested about 10% of my portfolio—a substantial risk for someone who considers themselves a risk-conscious investor. What gave me the confidence to make such a bold move? Let me take you back to where this story began.

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My First Encounter with Dollarama (2009)

The year was 2009. I was a student working a summer job in Regina, living on campus and managing every dollar carefully. One day, I went shopping for essentials—spatulas, dishes, forks, spoons, etc.—at Walmart. As I left the store, I noticed a Dollarama next door. Out of curiosity, I stepped inside and immediately regretted my earlier purchases. The same items I had just bought were available at Dollarama for a third of the price. As a student, saving money was crucial, and this discovery was a revelation.

At the time, Dollarama’s offerings were limited—mostly basic household items. Still, it left an impression on me: their products were cheap and functional, perfect for someone on a tight budget.

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The Transformation of Dollarama (2015)

Fast forward to 2015. The global market was changing rapidly, with China opening up to the world and platforms like Alibaba making it easier for businesses to source affordable goods. Dollarama’s shelves began to transform. Suddenly, they weren’t just selling everyday basics; they were offering better-quality products and seasonal items for Halloween, Christmas, and Valentine’s Day—all at incredibly reasonable prices.

As a frequent Dollarama shopper, I noticed something else: their stores were always busy. People were spending significant amounts of money during each visit. This observation was further validated when I read their annual report. According to their data, the average shopper spent at least $20 per visit. That resonated with me because, as a regular customer, I knew it was true.

Additionally, I noticed that new Dollarama stores were consistently opening in developing neighborhoods. The company was expanding its footprint in a way that seemed strategically sound.

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Why I Bought the Dip (2018)

When the stock dropped to $35, I decided to dig deeper. I read Dollarama’s annual report, listened to their conference calls, and assessed their long-term growth potential. Everything I observed and researched confirmed my belief that this was a well-run company with a strong growth trajectory. Despite the 10% allocation being a hefty portion of my portfolio, I had confidence in my investment decision.

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The Results

Fast forward six years, and Dollarama’s stock has skyrocketed from $35 to $140, delivering an annual rate of return at 26%. This performance outpaced both the TSX and the S&P 500 during the same period.

While Dollarama trades at a higher valuation compared to U.S. discount retailers, it has maintained market confidence as a growth stock by consistently meeting sales expectations. When and if this growth slows is anyone’s guess, but for now, the company continues to perform.

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Lessons Learned

This experience taught me the power of being a local shopper and observer. By paying attention to the businesses around me, I was able to identify a company with strong growth potential. I can’t take all the credit, though. My approach was inspired by the legendary investor Peter Lynch and his book One Up on Wall Street, where he discusses investing in companies you know and understand. I’ll delve into more lessons from Lynch in a future blog post.

For now, this journey serves as a reminder that great investment opportunities often start with simple observations in your everyday life. Keep your eyes open—you never know when the next Dollarama story might unfold in front of you.

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Disclaimer:

This blog page is for informational purposes only and does not constitute financial, investment, legal, or tax advice. The blogger is not a registered investment advisor, financial advisor, accountant, or broker/dealer.

Nothing contained in this blog or related materials should be construed as investment or financial advice. The information provided is for general knowledge, entertaining, and educational purposes only. Please consult with a qualified financial professional, legal advisor, or tax advisor for guidance tailored to your specific circumstances and investment objectives.

The blogger has not been paid to promote any securities or services, and nothing on this blog should be considered an offer or solicitation to buy or sell any securities.

Always conduct your own thorough research or consult with a qualified professional before making any investment decisions. Past performance is not indicative of future results. The information and figures presented in this blog are based on the blogger's recollection and may not be entirely accurate.