Canadian Tire vs. Dollarama: Which Should You Buy?

They’ve both been on a tear. Will either of them continue to soar?

| More on:
The Motley Fool

When investing in the United States, buying a retailer is a very dangerous game. Competition is intense, with heavy discounting often required to bring customers in through the door. There is always the threat of a giant like Walmart stealing market share. If a retailer doesn’t evolve with the times, it risks getting left behind in a hurry — does anyone remember Circuit City?.

In Canada, the environment isn’t as bad. Competition is less intense, Walmart has less of a presence, and the established players have all the best real estate. In fact, the last couple of years have been particularly good for retailers and their investors. Are any retailers still ideal for your portfolio? Below we take a look at two successful ones.

1. Canadian Tire

Before May of last year, Canadian Tire (TSX: CTC.A) was one of the least desirable stocks to own on the TSX. Growth was hard to come by, few people trusted management, and most observers were waiting for Target to come in and steal its customers.

Then everything changed. First came the decision to create a REIT from the company’s owned real estate. The following quarter, Canadian Tire announced that it would seek a bank partner for the retailer’s credit card receivables, and eventually partnered with Bank of Nova Scotia. Finally, Target had its struggles north of the border, so Canadian Tire’s share price went on an upward march, from less than $70 to over $100.

Is there still an opportunity? Well, the company is swinging for the fences on a lot of initiatives, from smaller stores, to a digital loyalty program, to its Sport Chek expansion. If the company executes well, then $100 will seem like a bargain for its shares.

2. Dollarama

Speaking of an upwardly marching share price, Dollarama (TSX: DOL) has certainly been on a tear since going public in 2009. There have really been two keys to its success. One is a consistent ability to make a profit selling items for far less than its competitors. This has allowed the company to offer its customers plenty of great bargains, draw lots of traffic, and make a strong return when opening up a new store.

The second key has been very rapid growth in the number of stores. Back in August 2009, Dollarama had 585 stores, and now has about 900. There is still room for plenty more; Canada still doesn’t have nearly the same concentration of dollar stores as the United States does.

So what should you do?

Unfortunately, Dollarama, at 24 times earnings, is probably too expensive for your portfolio. If you already own a bunch of banks and energy companies and want some diversification, then Canadian Tire is a very good option.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Benjamin Sinclair holds no positions in any of the stocks mentioned in this article.

More on Investing

food restaurants
Dividend Stocks

Better Stock to Buy Now: Tim Hortons or Starbucks?

Starbucks and Restaurant Brands International are two blue-chip dividend stocks that trade at a discount to consensus price targets.

Read more »

Diggers and trucks in a coal mine
Metals and Mining Stocks

1 Canadian Mining Stock Worth a Long-Term Investment

Cameco (TSX:CCO) stock could be a great long-term investment for Canadian growth seekers.

Read more »

Pot stocks are a riskier investment

Could Investing $10,000 in Aurora Cannabis Stock Make You a Millionaire?

Let's dive into whether Aurora Cannabis (TSX:ACB) could be a potential millionaire-maker stock, or a dud, over the long term.

Read more »

stock analysis
Energy Stocks

Is Enbridge Stock a Good Buy in May 2024?

Boasting high-yielding dividends and a stable underlying business, Enbridge (TSX:ENB) might be a great buy for your self-directed investment portfolio…

Read more »

Hand arranging wood block stacking as step stair with arrow up.
Dividend Stocks

1 Growth Stock With Legit Potential to Outperform the Market

Identifying the stocks that have outperformed the market (in the past) is relatively easy, but selecting the ones that will…

Read more »

healthcare pharma
Tech Stocks

Well Health Stock Is Up 7% After Earnings: What Investors Need to Know

Well Health is benefiting from strong demand as it digitizes healthcare and strives to improve patient outcomes.

Read more »

money cash dividends
Dividend Stocks

Passive Income: The Investment Needed to Yield $1,000 Per Annum

Do you want to generate a juicy passive-income stream? Here's a trio of stocks that can generate a yield of…

Read more »

Dividend Stocks

Here’s the Average TFSA Balance in 2024

The average TFSA balance has steadily risen over the last six years and surpassed $41,510 in 2023. Will the TFSA…

Read more »