Dollarama (TSX:DOL) stock is in the midst of a robust multi-year rally that could continue strong into the new year, even if no economic recession rears its ugly head. Indeed, Dollarama has been a great place to shop for cash-strapped consumers who have been hurting due to inflation.
Though inflation is starting to fall, many consumers at the local grocery store are likely seeing little (or even no) signs of relief financially. Indeed, just because inflation is coming down does not mean we’re suddenly back to 2019 or 2020 prices.
As higher prices and what remains of high inflation continue to weigh on consumers, my bet is that Canadians will continue to shop over at the local Dollarama. And if a recession finally does appear (how long have we been forecasting one to happen?), shares of Dollarama may get yet another tailwind to drive its share price even higher.
It’s not just about the narrative shifting from inflation to recession that could be a shot in the arm for Canada’s most impressive discount retailer giant.
Dollarama stock: The perfect buy for tough times!
The company is doing a lot of things right at the company-specific level. Its national expansion could really beef up growth over the long haul. As the firm continues saving its customers money, I think there’s a good chance that brand affinity could translate to robust loyalty, even when many Canadians have more discretionary (or disposable) income in their wallets again.
In that regard, I believe Dollarama is more than just a stock to hold if you’re expecting economic turbulence!
When you think of Dollarama, you probably think of magnificent deals!
Hats off to Dollarama’s management team for offering customers bang for their buck. Undoubtedly, the firm could have raised prices by a tad and still be competitive with most other retailers out there. The beauty of the Dollarama story is that it truly is a place to shop on a budget!
Of course, Dollarama is not immune from inflation’s pinch. It’s increasing prices in a fair and subtle manner, however. At least compared to certain grocery stores that made negative headlines for absurd prices on everyday necessities.
Shares of the discount retailer aren’t all too discounted
The only major risk I see for Dollarama stock lies in its current valuation multiple. It’s not a cheap stock right now after surging more than 55% in the past two years. At writing, shares of DOL go for 29.1 times trailing price-to-earnings (P/E). Given recessionary headwinds, expansion plans, and the firm’s operational expertise, such a multiple may be worth paying up for. How many very high-quality low-tech growth companies trade at less than 30 times trailing P/E these days?
Personally, I think Dollarama’s multiple is more than fair. That said, I’d be a bigger buyer on a more substantial pullback. In the back half of 2023, investors got just that, as shares fell into a correction, plunging around 10% from its peak of $100 and change.
Today, DOL stock has mostly recovered from the dip. But only time will tell what happens as shares flirt with the $100 level again. I think there’s a good chance a slight pullback could be in the cards. If it is, it may be time to act if you’re looking for defensive growth at a discount. For now, I’d be inclined to nibble with the intention of buying more through the year on pullbacks.