Investing in the stock market does not seem like the most attractive way to put your money to use when the market is volatile. If you are starting to invest right now, it is easy to feel hesitant about allocating any money to publicly traded companies. Due to the inflationary environment and rising interest rates, economic activity is slowing down in Canada.
While that can cool inflation down, higher interest rates make borrowing more expensive, reducing the spending power of the regular consumer. During harsh economic environments, people typically reduce discretionary spending and try to cut costs. Due to these factors, many businesses see a downturn in cash flows. However, not every company sees a loss of business when people cut discretionary spending.
While cutting unnecessary expenses, people also look for more cost-effective ways to fulfill their basic needs during market volatility. This is when businesses selling discounted goods thrive. Today, we will look at Dollarama (TSX:DOL), a stock that can be a good buy in market environments like this.
Stellar performance in 2023
As of this writing, Dollarama stock trades for $97.40 per share. Year to date, Dollarama stock share prices have climbed by 21.96%. Even after such a meteoric rise in its share prices this year, Dollarama stock is still shy of its 52-week high levels.
Dollarama stock has outperformed the market this year, with the S&P/TSX Composite Index gaining by 3.46% year to date. While the Canadian benchmark index outperformed Dollarama stock last month, the discounted retail store company has outpaced the broader market in 2023.
Considering how high it has risen, many investors might wonder whether investing in its shares might still be a wise decision. Fortunately, Dollarama stock does not look like its growth runway is ending anytime soon. The company’s business model makes it a relatively more reliable bet for investors seeking safer places to allocate their capital.
Dollarama stock has consistently delivered stellar performances since it went public in 2009. In over a decade since going public, it has grown its revenue by and adjusted earnings before interest, tax, depreciation, and amortization (EBITDA) at a compounded annual growth rate (CAGR) of 11.2% and 17.4%, respectively.
Its performance has stayed strong in 2023, with the company growing its revenue by 20.1% in the first half of fiscal 2023. It also grew its adjusted EBITDA by 23% in this period. With 81 new locations added in the last four quarters, Dollarama’s financials have also seen a massive uptick.
Foolish takeaway
While inflation is showing signs of easing up, Dollarama stock might not be in any trouble. In terms of growth prospects, its business model still puts it in a good position to deliver further growth. Despite inflation slowing, the government is nowhere near its target 2% inflation rate by 2026.
Until then, Dollarama stock might still see a significant demand for its discounted goods. With the company building its direct sourcing and buying capabilities, it is also eliminating a lot of expenses to grow shareholder value further.
Considering these factors, Dollarama stock might still be a good addition, despite nearing its 52-week high levels.
