On Friday, UBS initiated coverage on Dollarama Inc . (TSX:DOL:CN) (OTC: DLMAF) with a Neutral rating and set a price target of C$147.00. The firm views Dollarama as a highly efficient and effective retailer in North America, dominating the small box discount market in Canada. The retailer has carved out a niche in the C$1-C$5 shopping segment and is increasingly appealing to a broader range of customers across different income levels.
Dollarama's strategy includes expanding its private label offerings, allowing for product substitutions to maintain value for customers without compromising margins. UBS anticipates that Dollarama's ability to continuously attract customers will support the company's plans to open approximately 65 new stores annually and grow its revenue in the mid to high single-digit range through the fiscal year 2034.
Despite the positive outlook on Dollarama's business operations and growth potential, UBS points out that the stock's current valuation may limit the potential for significant near-term price appreciation. The stock is currently trading at 31 times next twelve months' (NTM) price-to-earnings (P/E) ratio, which suggests a premium valuation.
The analyst from UBS suggests that investors may want to wait for a more favorable entry point before investing in Dollarama shares. The caution is due to the difficulty in identifying immediate catalysts that could drive the stock price significantly higher than the consensus estimates already reflect.
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