Dollarama (TSX:DOL) Has Rallied 33% Year to Date: Should You Buy Today?

Dollarama Inc (TSX:DOL) is one of the best growth stocks on the TSX, and there could be a lot of upside left for investors that buy right now.

| More on:

Dollarama Inc (TSX:DOL) has been picking up steam lately, and investors may be wondering whether this could be the start of a much bigger rally. Let’s take a close look at the stock to see whether it’s a good buy today or not.

Big rally since most recent earnings disappointment

Dollarama’s stock was flying high a couple years ago because it could see no halt to its growth. Last year, however, same-store sales growth was softer, and the stock took a beating as a result. While Dollarama saw another sell-off after the release of its most recent quarterly results, it has started to rally since then, and year to date it’s up around 33%.

This could be a sign that investors aren’t quite ready to give up on this stock just yet, which still shows a lot of promise.

Why the company might still have a lot of growth left

Dollarama is still planning to grow and expand across the country, as there are still plenty of opportunities where it can grab market share. There is also a lot of room to grow organically as well. The more we hear about consumer debt levels rising and problems surrounding insolvency, the more of a need there is for a reduction in consumer spending.

That’s where I still see a big need for Dollarama and why the stock might still be able to achieve the strong growth numbers that it has previously. With a price point of four dollars or less on its items, there are lots of ways that consumers can cut down their costs by shopping at a discount retailer like Dollarama. Its products are comparable, and sometimes even the same as what consumers can find in big-box stores.

The need to keep costs down might be what helps drive growth up for Dollarama. And even if the store has a few bad outings, that doesn’t change the strength of its business model. One of the big challenges in retail is that many things that can weigh down performance; even something as unpredictable as the weather can have a big impact on seasonal sales.

While it may seem like a trivial excuse for a company to give, it’s not uncommon or unfounded. A late start to summer could impact items designed for the warmer months of the year, so the stock’s decline over the past year might be a bit of an overreaction.

Bottom line

Dollarama still has excellent growth prospects, and it’s definitely better than many other retail stocks out there. Now that the stock has started gaining some momentum, it might be a safer time to buy with the freefall over. If the stock can rebound with a strong quarter to start the 2020 fiscal year, the share price could take off in a hurry.

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 David Jagielski has no position in any of the stocks mentioned.

More on Investing

investment research
Dividend Stocks

Best Stock to Buy Right Now: TD Bank vs Manulife Financial?

TD and Manulife can both be interesting stock picks for today, depending on your investment style.

Read more »

A worker gives a business presentation.
Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

These stocks are out of favour but could deliver nice returns over the coming years.

Read more »

Man holds Canadian dollars in differing amounts
Dividend Stocks

This 5.5 Percent Dividend Stock Pays Cash Every Month

This defensive retail REIT could be your ticket to high monthly income.

Read more »

Confused person shrugging
Dividend Stocks

Passive Income: How Much Do You Need to Invest to Make $600 Per Month?

Do you want passive income coming in every single month? Here's how to make it and a top dividend ETF…

Read more »

Canadian Dollars bills
Dividend Stocks

3 Monthly-Paying Dividend Stocks to Boost Your Passive Income

Given their healthy cash flows and high yields, these three monthly-paying dividend stocks could boost your passive income.

Read more »

ways to boost income
Investing

Are Telus and BCE Stocks a Smart Buy for Canadian Investors?

Telus (TSX:T) and BCE (TSX:BCE) have massive dividend yields, but their shares have been quite sluggish!

Read more »

investment research
Tech Stocks

Is OpenText Stock a Buy, Sell, or Hold for 2025?

Is OpenText stock poised for a 2025 comeback? AI ambitions, a 3.8% yield, and cash flow power make it a…

Read more »

Make a choice, path to success, sign
Dividend Stocks

The TFSA Blueprint to Generate $3,695.48 in Yearly Passive Income

The blueprint to generate yearly passive income in a TFSA is to maximize the contribution limits.

Read more »