When it comes to investing, it’s essential to buy and hold some of the very best businesses you can find in Canada. And while there are plenty of good stocks to consider, there are only a handful of truly top-notch stocks to buy, such as Dollarama (TSX:DOL) stock, the ultra-popular Canadian discount retailer.
Dollarama has been a top growth stock for over a decade now. In fact, in the last 10 years, the stock has earned investors a total return of more than 600%, or a compound annual growth rate of more than 21.5%. That’s an incredible return, but the consistency of Dollarama’s growth is even more impressive and shows why it’s one of the top stocks in Canada to buy and hold for years.
Nevertheless, even when looking to buy some of the very best businesses on the market, it’s essential to wait till they offer value and avoid overpaying for these investments. Therefore, with Dollarama trading less than 5% off its 52-week high at the moment, it’s certainly worth wondering whether the stock is worth buying today in May 2023.
Is Dollarama stock worth buying today?
Although Dollarama has had an impressive and consistent streak of growth for more than a decade now, in the last year, it’s gained a tonne of value, as it benefits from surging inflation.
It’s not surprising to see Dollarama’s revenue grow, as inflation impacts consumers across Canada. Naturally, as their budgets are impacted, consumers will look for ways to decrease the amount of cash they need to spend on essentials, which often involves turning to discount retailers like Dollarama.
In fact, in just the last four quarters, Dollarama’s revenue has increased by roughly 17%, a significant jump for a stock with a market cap of over $23 billion, which was already earning over $4 billion in revenue each year.
However, while Dollarama’s performance over the last decade has been impressive and with the stock’s incredible performance since the start of 2022, it’s certainly possible that it could be a little expensive to buy today.
Furthermore, with inflation already subsiding this year, it’s possible that Dollarama stock could become cheaper over the next few quarters, especially if its sales take a hit as a result of a normalizing economic environment.
If the inflation rate continues to fall, will Dollarama have any short-term catalysts?
Although rapidly rising inflation has played a major role in Dollarama’s performance over the last year, the stock could still have plenty of potential both in the short and long run.
First off, while inflation did help its sales to grow significantly, it has also pushed Dollarama’s costs higher. So, as inflation falls, it’s certainly possible we could continue to see strong sales from Dollarama in addition to its profit margins improving.
Typically, even after the economic environment has improved, consumers stick to their new shopping habits. After all, the more money you can spend at discount retailers to buy essentials, the more discretionary spending you’ll have leftover, even if you get a raise to help offset the increased cost of living.
Another consideration for investors is that many economists and analysts still believe that there is a recession on the horizon. And similar to surging inflation, recessions impact the amount of money that consumers have to spend.
In fact, after the financial crisis in 2008 and 2009, Dollarama stock saw several years of consistent growth in its sales, so although inflation could be falling back to normal levels throughout 2023 if a recession was to materialize, Dollarama still has a tonne of potential to see its sales continue to grow each quarter.
After the roughly 17% growth in sales over the last year, analysts still expect Dollarama’s sales to grow another 10% this year. Furthermore, with the stock’s margins also expected to improve, its normalized earnings per share are expected to grow by over 13.5% this year as well.
Therefore, with Dollarama stock continuing to be one of the best defensive growth stocks on the market and with the stock trading at a forward price-to-earnings ratio of 26.5 times, which is only slightly above its five-year average of 24.8 times, the stock is certainly worth considering if you plan to buy and hold for years to come.