Shares of Dollarama (TSX:DOL) have hit 52-week highs in the last week as investors continue to look for recession-resistant stocks. However, recent data from the United States showed that the consumer price index (CPI) did not rise. This could signal the return to a better market, so what does that mean for Dollarama stock?
What happened
While shares of Dollarama stock have been climbing for a while now, they wobbled this week with the new CPI data. The relationship, you ask? Dollarama stock has long been a great retail stock to hold during a downturn of any kind, but particularly a recession.
That’s because Dollarama stock holds consumer staples. Those that we need to survive. It’s why the company remained open even during the pandemic, as an essential provider. But, be assured, there are other consumer staples out there as well! However, none of them provide the option and price that Dollarama does.
Dollarama stock offers everything from food and beauty products to toys and storage. You can get it all, with increasingly well-known brand names to boot. Because of this, the company continued to see an increase in sales, along with store openings. How much? Let’s take a look.
Earnings tell all
During the second quarter, Dollarama stock made several strong reports that sent shares higher. The company reported a 15.5% increase in comparable store sales. Its earnings before interest, taxes, depreciation and amortization (EBITDA) grew 23.8% to $457.2 million. Diluted net earnings per share also increased by 30.3%.
Its guidance for fiscal 2024 also improved, with comparable store sales growth expected between 10% and 11% for the year. What’s more, the company continues to expand in Latin America through its Dollarcity acquisition. Further, there are rumours that it may expand into Australia.
“Dollarama continues to deliver unparalleled value to a growing number of consumers seeking affordable everyday products at low price points, and we expect this strong demand to persist through the second half of the year in the current macro-economic context.”
Neil Rossy, President and CEO
What about long term?
Here’s the big question. This recent turmoil and uncertainty in the market has actually been great for Dollarama stock. In fact, practically every time a whisper of volatility comes the company’s way, Dollarama stock starts climbing in share price.
So what happens after we see a bear market? A bull market will come in, but will Dollarama shares rise or fall? To figure that out let’s look to the past. In 2018, there was worry that we could experience a recession, causing shares of Dollarama to climb. But as those fears dwindled, shares fell dramatically. Recession fears came back again the next year causing a climb, with just a dip when we saw the market fall during the pandemic crash in March 2020.
Since the bear market started, arguably, around 2021, we’ve seen shares of Dollarama stock surge. In fact, they’ve almost doubled in price in the last two years alone! But honestly, based on historic results, it does look like there will be a dip in the future.
Does that mean you shouldn’t buy? Absolutely not. It just means there could be a dip between downturns. Dollarama stock remains a strong, conservative option for those seeking long-term gains and protection during a downturn. But if you want a deal, wait on a dip.
