Although the majority of stocks on the TSX have been struggling since last year and continue to face significant headwinds, one of the few stocks that has unsurprisingly been a top performer is Dollarama (TSX:DOL), the incredible discount retail stock.
Going back to last year when the economy was still strong, but inflation began to soar, it became clear what a significant opportunity Dollarama had.
As the prices for all types of goods increased significantly, discount retailers like Dollarama saw a major increase in demand for their goods, resulting in an uptick in growth from a stock that’s already an impressively consistent growth stock.
For example, in the three fiscal years prior to last year, Dollarama averaged annual revenue growth of 6.9%.
Last year, in fiscal 2023, however, Dollarama saw its revenue grow by roughly 16.7%, and analysts expect that it will see another 15.5% of revenue growth this year.
This example illustrates what a high-quality stock Dollarama is, especially because it’s both one of the best long-term growth stocks on the market and a highly defensive business.
Worsening economic conditions drive consumers to its stores as they try to stretch their budgets. Plus, it’s not like in good economic times, sales drop off completely.
While there may be fewer incentives among consumers to shop cheap as the economy recovers, there’s never a shortage of demand for low-cost goods, especially when they are household staples.
That’s one of the main reasons why Dollarama has never had a single year where its revenue didn’t increase since it went public in 2009, and in the last decade, not even a single quarter where its revenue failed to grow.
Despite its impressive performance, is the discount retailer still worth buying today?
There’s no denying that Dollarama is one of the most impressive stocks in Canada and one of the very best to buy and hold for the long haul.
The question that many investors will inevitably have, though, is that with Dollarama stock now trading just off its 52-week high, is now really a great time to buy?
Of course, it’s impressive that so far, year to date, it’s gained 19.75%, compared to the TSX, which is down roughly 2%.
However, it also means that Dollarama is much more expensive today, at a time when so many other stocks across Canada trade at significant discounts that won’t last forever.
So, the answer to whether or not Dollarama stock is worth buying now depends. As is always the case, whether or not you should buy the stock depends on a myriad of factors, including your goals, risk tolerance, and the allocation in your portfolio already.
If you could use a defensive growth stock in your portfolio, though, then here’s why Dollarama stock is worth buying now, even while it’s trading just off its 52-week high.
Why is Dollarama stock still worth buying at its high?
Although Dollarama stock is certainly expensive today, there are a few reasons why it’s still worth adding to your portfolio in this environment.
First off, Dollarama is an impressive and consistent growth stock. These are the kinds of businesses you want to buy and hold for years in your portfolio.
A 20% return in one year may not seem like all that much, but compounded over 10 years, it adds up to a more than 600% return on your investment, which is roughly what Dollarama has provided to investors over the last decade.
Another reason to buy Dollarama stock even while it trades at such an expensive price is that it’s extremely difficult to predict short-term movements in stock prices.
It’s entirely possible that Dollarama stock could fall 5% or 10% in value in a few weeks from now. But waiting for that to happen to buy it, or worrying about that happening if you do pull the trigger today is not worth it. As we just saw, Dollarama is the ideal stock to buy and hold long term.
Therefore, it’s not worth it to worry about how its stock price will move in the short term, especially with analysts estimating that both its revenue and normalized earnings per share will jump over 15% and 22%, respectively, this year.
