Not every red-hot stock that’s been soaring unchecked is going to see its magnificent rally end in devastating fashion. Indeed, chasing hot stocks can be risky, and if the valuation makes little to no sense, you can certainly find yourself in hot water once momentum begins to turn, either gradually or drastically, in a matter of days.
Indeed, it’s often far better to tell yourself you “missed it” if you were glued on the sidelines as a hot stock took off to see new highs. That said, there are some rallying names that I believe stand to get more attractive as they rise. Sure, paying a higher price for a stock is never ideal. However, if the fundamentals and long-term story improve at a faster rate than a stock is rising, you may just have a stock that’s technically more undervalued despite trading at higher levels.
Hot stocks aren’t necessarily bubbles overdue to tank!
Of course, investors must put in the work when it comes to high-flyers. There is a real risk of feeling the force of the next stock sell-off, even if you’re right in that the fundamental story has improved to justify recent multiple expansion and higher share price. Sometimes, the market has it wrong, and you’ll just need to have a game plan if Mr. Market doesn’t see a certain stock the way you do. With stocks now in Trump rally mode, valuations have only crept that much higher.
So, if you’re sitting on the sidelines, I’d argue that it may make sense to pursue some of the fundamentally sound names that you’d be willing to pay up for. Otherwise, overweighting cash with the assumption a crash is around the corner could cost you some upside. Timing the market seldom goes your way, even if you’ve been in the investment game for a long time. Sometimes, it’s best to act of value, regardless of your expectation of its near-term trajectory.
Here is one incredibly hot TSX stock that’s still cheap-looking, in my view.
Dollarama
Dollarama (TSX:DOL) is a Canadian discount retailer that appears absurdly overvalued on the surface. If you look at the stock chart, you’ll think the name is overheated and positioned for a near-term pullback, perhaps a very painful one.
That said, Dollarama isn’t just another dollar store. It’s outperformed its peers south of the border for a reason. The company knows how to keep customers coming in by offering strong value and a wide range of products. Further, Dollarama also has a smooth long-term growth strategy. And thus far, its expansion has worked out quite well.
As economic uncertainties loom, I’d argue Dollarama stock is a premium stock worth its premium price tag. Seldom do you run across such a defensive growth stock that can defy the odds consistently. As Dollarama continues offering consumers a strong value proposition, I think its expansion will continue to be met with huge success.
After soaring 56% year to date, DOL stock goes for 38.5 times trailing price to earnings (P/E). It seems expensive, but is it really? I’d argue that it’s not all too expensive if it can keep delivering on its growth plans in today’s mixed economic environment.
