Dollarama Stock: Still Not Expensive (But the Deal Could End Fast)

Dollarama (TSX:DOL) stock’s remarkable multi-year run may be far from over as recession hits.

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Dollarama (TSX:DOL) stock has been surging higher under its own power for many years now. Over the past few quarters, momentum has begun to grind to a bit of a slowdown. Whether this marks the beginning of the end of Dollarama’s glorious rally remains to be seen. Personally, I think Dollarama stock is taking a brief breather before its next leg higher.

Amid inflation and recession worries, there are reasons to stand by the top discount retailers. Times will probably get tougher from here, as the recession rears its ugly head at some point in the second half of 2023. Dismiss the economic contraction as a short-lived, mild recession, if you will. But it’s virtually impossible to tell just how hard to landing will be, as the battle between central banks and inflation reaches the latter innings.

Inflation and recession: It may be too soon to get too aggressive as an investor

Inflation has been backing down, but it remains elevated. And it’s tough to tell if it can be dragged down to normalized levels without inflicting considerable pain across the board.

The Canadian housing market has already felt the heat of higher interest rates. With layoffs concentrated in the tech sector, questions linger as to just how much more pain is needed before inflation can hit 2% or even 3%.

It’s hard to tell. Regional bank failures are disinflationary by nature. Whether it’s enough to help deliver the knock-out punch to inflation, though, is the million-dollar question. For now, don’t depend on a successful pullback in inflation. It could linger for longer, even if central banks need to hike again after a momentary pause this year.

Dollarama stock: The perfect stock to play the bargain-hunting rush

With that in mind, the appetite for bargain hunting could stay high. And there’s no better firm to cash in on the bargain-hunting rush than Dollarama. It’s in the right place at the right time. Further, the company is very well managed such that it can make the most of the opportunity at hand.

As Canadians continue flocking to discount retailers and away from other pricier rivals, Dollarama is ready to reinvest in its long-term growth. The firm seeks to open 70 new locations across Canada. I think it’s a given that these stores will see big foot traffic, as satisfied customers continue to do everything in their power to save a buck or two.

In fiscal 2023, Dollarama opened 65 new stores, helping pad sales growth amid the bargain-hunting rush. I think Dollarama could get more aggressive with its expansion over the next 18 months, especially if the inflationary environment turns stagflationary.

Indeed, bad times for the economy can mean good times for Dollarama.

The bottom line for Dollarama stock

It’s full speed ahead for Dollarama. The stock trades at 29.86 times trailing price to earnings at the time of writing. That’s pretty fair for a defensive growth company that has a proven plan to persevere through turbulent times. As the firm pushes into its fiscal 2024, I expect more of the same — applaud-worthy outperformance!

Stay hungry, Fools. And stay tuned in here at the Motley Fool Canada.

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 Joey Frenette has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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