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Is Dollarama Inc. Still a Great Buy Near All-Time Highs?

Dollarama Inc. (TSX:DOL) had an impressive run last year, as the company returned a whopping 36% to shareholders. The company is a dividend-growth superstar in the making that will fair well during any economic downturns. I believe the company still has a ton of room to run, but is the stock still good value near the $100 level?

Dollarama is the largest dollar-store operator in Canada with over 1,000 chains across Canada. Although the company has a huge presence across the country, it still has room to grow, as the dollar-store market is extremely fragmented. The company stated that it’s able to support over 1,400 chains and will continue expanding to get to this level over the next few years.

Dollarama’s management team is top notch. They know how to get traffic in its stores by placing great products at a huge discount in its stores. Unlike other dollar stores, customers know that they’re actually getting the best-quality items that a dollar or two can get you. The company has been working closely with item manufacturers, so Dollarama is able to push the cost of a particular item even lower.

There’s no question that customers can’t get enough of Dollarama, and the proof is in the pudding. In the last quarterly earnings report, Dollarama saw same-store sales grow 5.1% with transaction sizes growing 5.8%. The new innovative products that Dollarama is including in its stores is drawing more customers in, and these customers are buying more things per visit. I believe this trend will continue going forward thanks to the management team’s ability to keep interesting new items as well as in-demand necessities on shelves.

If an economic downturn happens, investors can feel safe holding on to their shares of Dollarama. The stock may actually see better sales if times get tougher, since the average consumer will be pinching pennies. There are a ton of necessities that people need at Dollarama, and they’re priced at a discount, so you can count on customers to flock over to their local Dollarama to get a bargain on much-needed items.

The company currently pays a dividend of 0.41% which may not seem like much, but the company has increased its dividend every year since it introduced a dividend in 2012. These are generous dividend raises too; the company is capable of increasing its dividend by 12-15% over the next five-years, while still growing at a rapid rate. This company is a dividend-growth superstar in the works and will be a go-to pick for income investors in a few years.

What about valuation?

Dollarama is a fantastic dividend-growth stock that will fair well in the harshest of economic environments, and because of this, a huge premium is baked into the stock. The stock is anything but cheap at current levels with a 28.32 price-to-earnings and a 4.2 price-to-sales multiple, both of which are more expensive than the company’s five-year historical average multiples of 27 and 3.4, respectively.

If you’re bearish on the economy, then it may be a good idea to buy shares, but for the average investor, the stock is just a tad too expensive to be a good buy at current levels. I would keep Dollarama on your radar and pick it up when there’s a market sell-off, which could be around the corner as the Trump rally starts to fade.

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Fool contributor Joey Frenette has no position in any stocks mentioned.

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