Dollarama (TSX:DOL) stock is continuing to outperform the broader market for the fifth consecutive year in 2023. The stock is currently up 17.6% on a year-to-date basis at $93.14 per share with a market cap of $26.2 billion. In comparison, the main TSX benchmark has risen 7.5% so far this year.
Last week, however, Dollarama’s share prices tanked by nearly 10%, whereas the main TSX index rose 1%. The question on many investors’ minds now is whether Dollarama stock is worth considering after this decline. Before we discuss that, let’s take a closer look at what triggered a selloff in DOL stock last week.
Why Dollarama stock dived last week
A selloff in Dollarama stock started after the company released its quarterly earnings report on December 13. Its poor stock performance, however, doesn’t mean the company’s latest financial results were weak or the results missed Street analysts’ expectations. In fact, the Canadian value retailer managed to beat estimates by a healthy margin, confirming that it’s on a solid growth trajectory with strong fundamentals.
In the third quarter (ended in October) of its fiscal year 2024, Dollarama posted a notable 14.6% YoY (year-over-year) increase in total revenue, reaching $1.5 billion. This surge could be attributed to an increase in the total number of stores and an impressive 11.1% rise in same-store sales (SSS).
To add optimism, its adjusted quarterly earnings jumped 31.4% increase from a year ago to $0.92 per share, higher than Street’s estimates of $0.86 per share. These solid sales and profit figures clearly reflect Dollarama’s operational efficiency and strong consumer demand for its products.
Despite these strong results, DOL stock started falling after its third-quarter earnings event after the management in the earnings conference call highlighted how it expects normalization in its SSS trends to continue as “future consumer behavior remains hard to predict.” While these expectations of SSS normalization are already factored into the company’s full-year guidance, these comments still seemingly hurt investors’ sentiments, leading to sharp declines in Dollarama share prices last week.
Is it the right time to invest in Dollarama stock?
It’s important to note that Dollarama has consistently been exceeding analysts’ revenue and net profit estimates for nine consecutive quarters. Even as Dollarama’s SSS is likely to normalize going forward, its financial growth could still remain stronger than most of its peers in the long run as the demand for its affordable products usually remains stable, even in challenging economic times.
Moreover, the company’s diversified product range and its expanding store network further brighten its financial growth outlook. In the first three quarters of its fiscal year 2024, Dollarama has added 55 net new stores to its network, expanding its total store count to 1,541.
Considering all these positive factors, Dollarama stock has the potential to continue outperforming the broader market in the years to come, which makes it look even more attractive to buy after the recent drop. While short-term fluctuations in stock prices are inevitable, Dollarama’s fundamentals suggest it could be a great addition to a long-term investor’s portfolio.
