Don’t Forget About Dollarama Stock! Here’s Why More Gains Could Be Coming

Dollarama (TSX:DOL) stock may have warned investors about higher prices, but don’t let that stop you from considering the stock.

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Dollarama (TSX:DOL) stock has been one of the few companies actually seeing positive movement during the last year. The rest of the TSX today has gone through what feels like a hangover from 2020 growth and 2022 cryptocurrency investments and downfalls.

Yet now, the market could be on the road to recovery. That’s especially true as it seems as though there could be an end to rate hikes — not just in Canada but around the world. However, don’t let that cause you to forget about Dollarama stock! Here’s why.

Shares drop

After almost reaching $100 per share in the last month, Dollarama stock saw a slight drop as the company announced its most recent earnings report. The low-cost retailer stated that inflation had finally put pressure on the company’s food and household goods. And now, the retailer may need to pass that increase on to its customers.

Dollarama stock has long been known to try its best not to pass on those increases, seeing a rise in those shopping at their locations from this process. However, as management stated, “Retailers can only absorb so much.”

Most of the increases will come from “consumables.” Those are paper, plastics, foil, cleaning supplies, basic health and beauty, pet food, confectionary, drinks, snacks, and other food products. However, general merchandise doesn’t seem to have the same pricing pressure. Yet these consumables are really what Canadians have been searching for as prices continue to rise.

Why buy?

Earnings were still quite positive, and Dollarama stock has been known to be quite conservative in its reports and results. It tends to lean towards preparing for the worst and providing an upside to investors when the time actually comes.

This could again be the case, with Dollarama stock reporting strength across the board during its most recent earnings report. More consumers have led to $261.1 million in profit for the most recent quarter, up from $201.6 million the year before. Sales reached $1.48 billion, up from $1.29 billion as well.

The increase in sales wasn’t just from more visitors as well. The sales growth also came from more stores across the country, up 11.1% year over year. And if you’re fearful that Dollarama stock will see fewer people come their way during lower inflation, management wasn’t worried, stating, “There are just more dollars to spend.”

Looking ahead

All this is to say that while rising prices may come, Canadians will continue to come to Dollarama stock, knowing at least it’s the lowest of these high prices. Its outlook remains strong, seeing comparable store sales up 11% to 12%, an increase from 10% to 11% earlier in the year.

Furthermore, there’s still the matter of global expansion. Dollarama stock purchased Latin American low-cost retailer Dollarcity, and that has been a wild success. Furthermore, with money on the books, it could even expand to Australia. Those rumours abound at this stage.

So, for now, Dollarama stock actually looks like a great deal. More growth is set to come, even though shares are up 22% in the last year alone. But after this slight dip in share price, it could be one of the best times to pick up the stock for a long-term hold.

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 Amy Legate-Wolfe 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.

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