Dollarama: A Bargain Stock for a Bargain Hunter

Dollarama continues to fire on all cylinders, and with it now trading off its 52-week high, it’s one of the best stocks you can buy today.

| More on:
edit Sale sign, value, discount

Image source: Getty Images

Over the past year and a half, most Canadian businesses have struggled, as the economy has worsened. Plus, with so much uncertainty about the economy, the market environment has also worsened, causing many stocks to perform poorly. One stock that continues to perform well and actually benefits from the current environment is Dollarama (TSX:DOL), the discount retailer.

Dollarama has been one of the most impressive growth stocks for years. Having a business that allows consumers to buy discounted goods will always be popular. However, Dollarama has really shined as inflation has surged, and many have been concerned that a recession is right around the corner.

So, it’s not surprising at all to see the stock continue to beat expectations, as bargain hunters flock to its stores to save as much money as possible and stretch their budgets in these tougher economic times.

And once again, just this morning, Dollarama stock reported earnings that beat analyst expectations reminding investors why it continues to be one of the best stocks to buy now, but also one of the top investments to hold in your portfolio for years.

Dollarama stock starts fiscal 2024 with impressive earnings

Dollarama has been benefiting from strong demand for its cheaper groceries and household supplies, especially, as surging prices of groceries hammer consumer spending power.

In fact, in its most recent quarter, its first quarter of fiscal 2024, Dollarama’s sales rose to $1.29 billion, up significantly from $1.07 billion a year earlier and beating analysts’ average estimate of $1.25 billion.

Same-store sales growth (SSSG), a key measure of Dollarama’s performance, was up over 17%, and traffic at its stores was up over 15% year over year, showing just how much Dollarama is benefitting as the economy worsens.

Plus, in addition to its incredible top-line growth, Dollarama’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) increased by 22% year over year to more than $365 million. And on the bottom line, its earnings per share (EPS) came in at $0.63 — well ahead of the consensus estimate of $0.59.

Furthermore, Dollarama also reaffirmed its fiscal 2024 same-store sales forecast and gross margin at 5-6% and 43.5-44.5%, respectively.

Despite Dollarama’s impressive performance, it’s the perfect investment for bargain hunters

With Dollarama performing so well over the last year and a half in this economic environment, as well as it being one of the only stocks that’s growing and gaining value, you may think that you missed the opportunity to buy this impressive company while it was cheap.

However, despite Dollarama stock being up by roughly 34% since the start of 2022, it continues to be one of the best stocks to buy for your portfolio today, even if you are more of a value investor and bargain hunter.

Dollarama is ideal for a few reasons. While there are definitely stocks that trade cheaper than Dollarama, many of these companies are struggling in the current environment. And given the uncertainty we’re experiencing today, these stocks could continue to underperform for months before they recover.

Meanwhile, not only does Dollarama have significant growth potential, but it’s also highly defensive, so it can protect and potentially grow your capital while the economy continues to struggle. Furthermore, if you dive deeper into the numbers, Dollarama stock offers value, especially when you consider the quality of the company you’re investing in.

Today, Dollarama trades at a forward price-to-earnings ratio of 26.3 times. That may sound high, but for a stock like Dollarama that’s grown its EPS at a compounded annual growth rate of roughly 16% over the last three years and has seen its profitability ramp up in recent quarters, the stock looks to be trading at an attractive price.

Furthermore, 26.3 times earnings is not only below its average over the last year of 27.1 times, but it’s also slightly lower than its two-year average of 26.4 times. So, even after its unbelievable performance over the last couple of years, bargain hunters can still buy the stock while it’s slightly undervalued.

Therefore, if you’re looking to add a top stock to your portfolio in this environment that you can have confidence in and hold for years, Dollarama is a top choice that any investor can consider.

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 Daniel Da Costa 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.

More on Investing

10 stocks for the next 10 years
Top TSX Stocks

The Top 10 Stocks to Own for the Next 10 Years [PREMIUM PICKS]

These are the kinds of businesses that dominate their markets and end up rewarding investors time and again.

Read more »

A cannabis plant grows.
Cannabis Stocks

What’s Happening With Cannabis Stocks in October 2023?

Cannabis stocks are a shadow of their former selves, but with more movements in Canada and the U.S., could the…

Read more »

Canadian Dollars
Dividend Stocks

The Best TSX Stocks to Invest $5,000 in October 2023

The bearish market momentum of October 2023 has created a ripe time to buy three TSX stocks that can outperform…

Read more »

Increasing yield
Dividend Stocks

2 TSX Dividend Stocks With Lucrative Yields in October 2023

These stocks pay great dividends that should continue to grow.

Read more »

Gold medal
Dividend Stocks

Canadian Blue-Chip Stocks: The Best of the Best for October 2023

These TSX giants deserve to be on your radar.

Read more »

Various Canadian dollars in gray pants pocket
Dividend Stocks

Earn $50 a Week With These 3 Stocks

The right dividend stocks offer more than just a high yield. They offer sustainability and growth, so you can rely…

Read more »

rain rolls off a protective umbrella in a rainstorm

2 Defensive Stocks That Can Gain up to 128%, According to Bay Street

Cheap TSX stocks such as Dentalcorp are trading at an enticing valuation and have massive upside potential right now.

Read more »

oil and gas pipeline
Dividend Stocks

Where Will Enbridge Stock Be in 10 Years?

I wouldn’t be surprised if ENB stock even doubles in value in the next 10 years. Here why.

Read more »