Down by 8%: Should You Buy Dollarama Stock Right Now?

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Dollarama (TSX:DOL) is among the most well-known, large-cap stocks in Canada, and there are multiple reasons for that, ranging from its business model to its long-term growth potential. The company also pays dividends and has earned the title of an Aristocrat by growing its payouts for 12 consecutive years; the yield is usually too low for most dividend investors.

Right now, another reason to consider Dollarama stock is the modest 8% discount the company is offering. Still, investors should rightfully wonder whether the stock is poised for purchase right now or if they should wait for a more attractive discount tag.

The company

Dollarama started with one store in Quebec in 1992, and now, about 31 years later, it has grown to over a thousand locations around the country. One of the primary reasons for the success of Dollarama is the same as most global chains of dollar stores/similar businesses — i.e., affordability. Dollarama stores offer Canadians a wide array of products at significantly low prices.

As one of the most well-known value chains in Canada, Dollarama has become a household name, at least in some parts of the country.

Considering the inflation and the rapidly rising cost of living that has pushed many Canadians to adopt a relatively more frugal lifestyle, the popularity of Dollarama may be increasing. More people might leverage the low-price options Dollarama stores offer to better manage their expenses.

The stock

Dollarama is a healthy business that has been growing at a powerful pace, and the stock is keeping pace with its progress. The stock has grown over 660% in the last decade alone, making it one of the most consistently powerful growers on the TSX. The stock has gone through two major bearish phases in the last decade, but it usually makes a good recovery, which is a testament to its resilience.

Its resilient business model allowed it to absorb the impact of COVID with minimal damage. The stock fell just about 21% and recovered its pre-pandemic valuation by mid of 2020. The stock is currently modestly discounted and overvalued, but these two factors alone might not be enough to make an educated investment decision.

The company is merely days away from announcing its earnings, and based on how it has performed, the stock may move up or down.

If the earnings are strong, the discount might erode away in a matter of days, but if they are lower than the expected levels, you may be able to buy the company at a double-digit discount. Either way, its long-term growth potential makes it worth buying — just not right now. It might be wise to wait for the earnings.

Foolish takeaway

As one of the top stocks in Canada and a powerful grower, Dollarama is highly coveted in almost all market conditions. So, waiting for the stock’s valuation to drop to a desirable level might not be smart. If you leverage even the small discounts (like the one available right now), you can always add more when the valuation becomes attractive enough to you.  

The post Down by 8%: Should You Buy Dollarama Stock Right Now? appeared first on The Motley Fool Canada.

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Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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