Dollarama: 1 of the Few Canadian Stocks to Buy That Can Benefit From Inflation

As inflation continues to surge in Canada and the U.S., Dollarama is easily one of the best Canadian stocks to buy now.

| More on:
grow dividends

Image source: Getty Images

This morning we got new inflation data in for the United States. Although it’s not precisely Canadian numbers, our economies always mirror each other closely, and so far this year, that’s been the case when it comes to watching inflation. Therefore, after another massive jump in prices, investors may be looking to find Canadian stocks to buy in this environment.

And while there are a few companies that can ultimately benefit from inflation, Dollarama (TSX:DOL) is easily one of the best Canadian stocks to buy now.

When consumer incomes are impacted, discount retailers can benefit

One of the main reasons Dollarama has so much potential in this environment and is one of the best Canadian stocks to buy now is that it has the potential to grow its market share. Any time consumers’ incomes are being affected, whether that’s from surging inflation or a recession, discount retailers such as Dollarama naturally see an increase in volume.

Consumers look for any way possible to offset rising costs, especially when they are consistently outpacing wage growth. And one of the easiest ways to do that is to stop buying essentials at big-box stores and instead look for discount retailers like Dollarama.

And while Dollarama may not be the only discount retailer, it has a massive market share, is an incredibly well-known brand, and has been improving its merchandising for years.

Therefore, the longer that inflation surges, the more sales growth Dollarama should see. Whether that can all flow to the bottom line, though, is another question.

Dollarama is one of the best Canadian stocks to buy now, but it still has risks

Dollarama is certainly one of the few stocks that can see a benefit from inflation as its sales grow. For most other businesses, especially ones selling discretionary goods or services, sales will likely slow as essentials take up more of consumers’ budgets.

However, while Dollarama can see a benefit in its sales from inflation, there are still risks that rising costs, as well as other supply chain issues, could impact its costs and, therefore, its margins.

In reality, due to Dollarama’s incredibly merchandising, its recent introduction of the $5 price level, and the fact it can grow its sales significantly should be able to help the stock offset these rising costs. And when it reported earnings for its first quarter of fiscal 2023 last month, that’s exactly what we saw.

However, there is certainly still the risk that although its sales do increase, its earnings could temporarily decline if its margins are significantly impacted.

Bottom line

Despite these minor risks, Dollarama continues to be one of the best Canadian stocks to buy now. Because, as we’ve seen over the past decade, not only can the stock benefit in the short term, but it can use this momentum and increase in popularity to continue driving sales for years to come.

Right now, the stock is trading at 27.5 times its forward earnings, only slightly above its long-term average. So, when you consider that it’s one of the only companies with the potential to perform well in this environment, then it’s certainly one of the best Canadian stocks to buy now.

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 Daniel Da Costa has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

More on Investing

Business man on stock market financial trade indicator background.
Tech Stocks

1 Growth Stock Down 50 Percent to Buy Right Now

There are plenty of growth stocks in the market worth considering, but Shopify (TSX:SHOP) looks like one of the best…

Read more »

You Should Know This
Dividend Stocks

How to Convert a $300 Monthly Investment Into $338 in Monthly Income

If you want a certain amount in monthly passive income, invest a similar amount today and leave the rest to…

Read more »

Increasing yield
Dividend Stocks

3 Income Stocks With Big Yields to Consider in April 2024

If you haven’t yet made your March investments, here are three income stocks to buy the dip and lock in…

Read more »

Senior Man Sitting On Sofa At Home With Pet Labrador Dog
Dividend Stocks

RRSP Investors: Don’t Miss Out on This Contribution Hack!

This hack has so many benefits for you -- not just when you put it in your RRSP but for…

Read more »

edit Sale sign, value, discount
Stocks for Beginners

These 3 Growth Stocks Are on Sale and Set to Surge

Some growth stocks are on sale right now that offer massive long-term potential for investors. Here's a trio to consider…

Read more »

Cannabis grows at a commercial farm.
Cannabis Stocks

Why Canopy Growth Stock Could Double in 2024

Canopy Growth (TSX:WEED) stock saw its share more than double in the last two weeks. So, can it do it…

Read more »

Young woman sat at laptop by a window
Dividend Stocks

3 Dividend Stocks Everyone Should Own for the Long Haul

For investors looking for top-tier dividend stocks to buy and hold for the long term, here are three of my…

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Passive Income: 2 Safe Dividend Stocks to Own for the Next 10 Years

Dividend stocks such as Manulife and Fortis can help you generate a stable and recurring passive-income stream.

Read more »