Dollarama (TSX:DOL) stock has been a top performer for investors over the past few years. With inflation weighing, layoffs sweeping through the tech sector, recession fears mounting, and bank failures south of the border impacting our psyche, it’s not too hard to imagine why so many Canadian consumers are inclined to save money where possible. Dollarama is one of the firms that’s been taking advantage of the opportunity to help Canadians get a slightly better bang for their buck.
With the big Canadian grocery retailers getting grilled over the so-called greedflation, I think Dollarama is one of the firms in the retail space that’s been able to preserve its reputation, even with recent price hikes. How? Dollarama is all about price certainty and getting great deals from its suppliers. Dollarama may have no option but to raise prices accordingly, but Canadians still know they’re getting some of the best deals in town for certain low-cost necessities.
Indeed, you can bet that price certainty is in really high demand in such a highly inflationary world. Over time, inflation will cool, but a recession or economic sluggishness could linger for longer. In that regard, Dollarama’s best days may not yet be over, as the firm takes steps to expand further to help more Canadians get a good value for their money.
Dollarama stock: Near new highs, but still a great value in this kind of environment
Dollarama stock has enjoyed quite the run over the past five years, surging nearly 70% over the timespan. With a low beta of 0.72, DOL stock has been a relatively smoother ride than the market averages. As harsher economic conditions continue, I expect bargain hunters will keep flooding into Dollarama, helping it power even more lowly correlated gains.
The discount retailer is also planning to open 60-70 new stores for the fiscal year 2024. As the company continues investing in growth in such an environment, I’d argue that Dollarama still has plenty of gas left in the tank. Further, I think there’s a good chance that Canadian consumers could view the brand more favourably, even after the recession ends and times are good again.
Dollarama is more than just a dollar store. It’s a very well-run one that seems to know what the consumer wants. And its ability to offer competitive prices is what I think will help its new locations become hit successes. You already you what you’re getting from Dollarama: unmatched value.
Dollarama stock: What about valuation?
At 30.22 times trailing price to earnings (P/E), Dollarama may not seem as cheap as the products it sells. That said, it’s one of few firms that can just plow through a downturn with its growth profile intact. If anything, a recession could help Dollarama leave the rest of the market behind.
Given the magnitude of earnings growth that could be ahead, I’d argue that a mid-30s P/E multiple could be more than warranted. In any case, Dollarama seems like one of the names to keep atop your watchlist, as it continues to impress quarter after quarter.
