With so many stocks falling in value over the last year, including some of the best and most resilient stocks in Canada, Dollarama (TSX:DOL) and its unbelievable performance have certainly stood out.
There are numerous headwinds impacting the economy, and while some companies are being impacted by multiple headwinds, most companies have been negatively impacted by at least one headwind, whether that’s inflation weighing on consumer spending, supply chain issues or higher interest rates impacting profit margins.
Therefore, the fact that Dollarama is one of the few stocks seeing its business benefit from this environment, and the fact it’s done such an impressive job of taking advantage has certainly caught the eye of many investors.
With the economy expected to eventually recover, though, many investors are now wondering how much longer Dollarama can continue to keep up this growth.
This is why, even after reporting another quarter of impressive earnings, there has been mixed reaction from analysts, and the stock has pulled back by more than 10% from its high.
So, let’s look at how Dollarama has performed recently, what potential it has in the future and whether you should buy, sell, or hold the stock today.
Dollarama’s third-quarter earnings show it continues to perform well in this environment
Dollarama’s strong performance over the last year, as both surging inflation and interest rates have impacted consumers, is not necessarily surprising. For years, the stock has grown rapidly and expanded its store count as the demand for discounted staples is always strong.
Now, with the economy rapidly worsening over the last year, it’s certainly not surprising to see an increase in sales as more consumers look to stretch their budgets.
Just because it’s not surprising, though, doesn’t mean that Dollarama’s performance is not impressive. In fact, in the six quarters since the start of its fiscal 2023 year, Dollarama increased its revenue by an unbelievable 27.3%, a significant pace for a $27 billion stock.
Plus, in its most recent earnings report for the third quarter of its fiscal 2024 year, Dollarama reported revenue of $1.48 billion which was essentially in line with expectations and up 14.6% from the same quarter last year.
However, thanks in large part to a significant improvement in margins, Dollarama’s adjusted earnings per share (EPS) came in at $0.92 compared to the consensus estimate of $0.86. They were also more than 31% higher than the $0.70 in adjusted EPS that Dollarama earned in the same quarter last year. Plus, management increased its guidance for same-store sales in fiscal 2024.
Despite another quarter of significant growth, though, reactions from both the market and analysts have been mixed. Since the earnings were reported on Wednesday, the stock is down nearly 10%. Furthermore, while some analysts have increased their target prices for Dollarama stock, others have actually reduced their target prices.
Of the eight analysts covering Dollarama stock, there are now five buy ratings and three hold ratings with an average target price of $105.12.
Is Dollarama stock still worth buying today?
Although Dollarama stock has proven time and again that it’s an incredible long-term growth stock and can continue to expand its business in any phase of the economic cycle, there is certainly a strong possibility that the heightened rate of growth will eventually sizzle out as the economy begins to recover.
With that being said, though, after the stock has pulled back 10% from its high in the last two days, it certainly is much more compelling at this price. Not to mention, a high-quality stock like Dollarama won’t ever trade at a significant discount.
So, although its near-term growth could see a slowdown, as the economy recovers, Dollarama is still one of the best long-term stocks in Canada.
Therefore, if you’re looking for a high-quality stock that you can buy now and hold for years to come, Dollarama stock is certainly worth consideration while it trades off its highs.
