Shares of Dollarama (TSX:DOL) have steadily ascended for yet another year, adding more than 42% year to date. Undoubtedly, with over 113% returned in just two years, the discount retail gem has not only been one of the best performers in the Canadian stock market, but one of the least volatile names. With a 0.22 beta and strong upside momentum, shares of DOL really do seem to fit the bill of a “smart beta” stock.
With defensive traits (consumers tend to shop more when times are tougher) and an ambitious, yet disciplined, expansion plan that could beef up earnings growth in the coming years, it’s hard to find any blemish on what seems to be one of the best new defensive growth stories in North America.
Of course, the only thing stopping me from pounding the table on the wonderful retailer is the valuation. It has been a pricey stock for close to two years now, but with shares close to all-time highs of around $200 per share, the name goes for 42.4 times trailing price-to-earnings (P/E). To put it simply, there’s a lot of optimism baked into the stock at current levels. Dare I say shares are priced for perfection?
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Dollarama is one of the better Canadian smart beta plays!
While the smart beta stock has seldom suffered steep plunges over the years, I do think that incremental buying could be the way to go, especially since the price to admission to the very best share-taking retailers has gone up over the past year. And while inflation in Canada has come down significantly, food price inflation remains one of the biggest thorns in the side of Canadians.
At the end of the day, necessities such as food and shelter are the components of inflation that households feel most acutely. In any case, Dollarama’s incredible performance, I think, speaks to Canadians’ desire for great deals.
Same-store sales growth numbers have been exceptional, and there’s no reason to think the tides will reverse course in 2026, especially as the cost of everything stays higher for longer. Even if necessity inflation were to retreat, there’s really no undoing the price hikes. In essence, the damage is done, and the only way to get a good deal is to shop more at the retailers that offer unmatched value. Dollarama is one such retailer that has stood out.
Arguably, it’s the best discount retail play in North America, given its ability to offer steep savings to consumers while keeping a merchandise mix that appeals to customers. I’m a big fan of the stock, even at more than 40 times trailing P/E. Ahead of the holiday season, the Dollarama stores I’ve gone to are as packed as ever, and for good reason. The shelves are packed with affordable stocking stuffers!
Dollarama is the ultimate treasure hunt experience
There are many fantastic bargains to be had. Whether we’re talking about snacks and chips or discretionary items and stocking stuffers, there’s a lot of appealing merchandise for those willing to go through the aisles. It really is a “treasure hunt” kind of experience, one that’s gotten far better in the past couple of years. The shelves are stocked, and some of the deals to be had really do seem too good to be true, especially when you consider where prices have gone at other retailers of late.
Though I would be more tempted to buy on weakness. Given the potential for investors to shift to more defensive plays, I’m not so sure when we’ll get a correction in the shares. With so many strong quarters under its belt and a plan that management has executed on smoothly, I see even more strength to come in the new year as bargain hunters continue to swoop in.
In five years, I see Dollarama stock moving much higher from here, as it expands its footprint while keeping the good deals coming. It has nailed the treasure hunt experience, and with room to run (a mere $54 billion market cap), Dollarama could continue to be a smart-beta defensive grower for the ages. The only concern I have is with valuation.
