Over the last five years, the consumer discretionary index posted returns of approximately 122%
Retail industry stocks in Canada have outperformed the broader stock market in the last several years, and the sector continues to show bright promise. For retail companies, this performance presents a compelling environment to consider a public offering, according to Ryan Thomas, head of business development, diversified industries at TMX Group Ltd., which owns the Toronto Stock Exchange (TSX).
According to Thomas, in the last year, the consumer discretionary index on the TSX increased by 20%, compared to a 6% increase for the broader TSX composite index.
Over the last five years, the consumer discretionary index posted returns of approximately 122%, compared to the broader stock market index, which increased by roughly 30%.
“If you look at the returns for the consumer indexes, they really show a significant outperformance over the TSX over not only the last year, but over a five-year period,” Thomas says.
The gains in consumer stocks have been driven by very healthy performance of companies in the sector.
Dollarama, for instance, has seen its stock rise by over 400% during the past five years, due to repeated solid growth in sales and profits.
The positive economic and market environment has caused numerous retailers to pursue IPO (initial public offerings) in the past few years. In fact, the consumer sector in Canada has experienced 11 IPOs since 2015 – more than any other sector on the TSX, according to experts.
The main advantage of an IPO is access to a vast new source of capital. Extra capital can provide companies such as retailers with the funds they need to pursue growth. Going public also offers a boost in profile, which can be a plus for consumer brands.
However, transitioning into a publicly traded company also presents challenges and significant new responsibilities. Managing quarterly reporting requirements and investor communications, for example, requires considerable resources. Nonetheless, Thomas says an IPO can be beneficial for many companies.