Dollarama (TSX:DOL) tends to be how a lot of Canadians might consider cutting back when it comes to buying everyday products. Rather than looking for convenience, during a time of inflation and interest rates on the rise, Canadians need savings. That is why Dollarama stock tends to do well during recessions.
Don’t doubt Dollarama stock
Dollarama stock has been growing steadily over the last few years for a number of reasons, unrelated to a potential recession. It was believed back in about 2018 that a recession might be coming. It had been about a decade since the one before, after all. But what instead ended up happening was, the world was hit with a pandemic.
Dollarama stock did well after the initial blows. The stock was able to keep its doors open as an essential business, leading to less of a sting than other retail companies. Since then, it’s continued its expansion path until this day.
While other companies may still be looking to bounce back from pandemic restrictions, Dollarama stock is expanding. The company continues to open new locations around the country, providing new revenue streams along with it. But could this all go away during a recession?
In short, no
Recessions have proven a time when Canadians and people the world overlook to save. Given this, Dollarama stock tends to be a cyclical stock. It does well when the rest of the market isn’t doing so well.
Furthermore, the company continues to see strong same-store sales performance, according to its latest earnings results. Analysts believe this will continue through full-year 2024, with double-digit earnings per share (EPS) growth as well.
That being said, this could still see a “slight deceleration” from its higher average, in the words of one analyst. And this is actually from some believing we won’t enter a recession, or at least we will go through a mild one. So, now, the peak pricing of Dollarama stock for the near term could be over.
When to buy
If it becomes clear we’re going to enter a recession, Dollarama stock remains a strong defensive hold for long-term investors — especially those seeking lower risk, according to analysts. However, there is “limited” upside for the near term, as inflation and interest rates slowly but surely get under control.
Should you avoid it? No way. I would instead recommend waiting for a dip. The stock does dip from time to time, and significantly; for example, it dropped 11% early on in 2023 before climbing back.
Shares are now up 13% in the last year but just 4% year to date. All that excitement may now be over for investors, especially with shares trading at 44.1 times earnings as of writing. With that in mind, even if you’re interested in Dollarama stock, I would save your cash for a rainy day.
When shares of the stock start to drop, you can be sure to get a great deal that could potentially last a lifetime. And one that will certainly give you a defensive edge when the next recession comes down.