Is Dollarama a Buy?

Shares of Dollarama Inc (TSX:DOL) are up 11% this year, well above the TSX’s 3% decline over the same period. The dollar store chain is an appealing investment especially amid a recession and when consumers are on tighter budgets. In its most recent quarterly results, for the period ending Aug. […]

Shares of Dollarama Inc (TSX:DOL) are up 11% this year, well above the TSX’s 3% decline over the same period. The dollar store chain is an appealing investment especially amid a recession and when consumers are on tighter budgets.

In its most recent quarterly results, for the period ending Aug. 2, the retailer reported solid sales growth of 7.1%, reaching $1.0 billion. Its comparable store sales grew at a rate of 5.4% (when excluding temporary store closures), and even when including all stores, the growth rate was still a positive 2.5%. President and CEO Neil Rossy stated that “our sales were strong, driven by the demand for summer seasonal items, and store traffic improved with each month as provincial reopening plans unfolded.”

The company is scheduled to release its third-quarter results on Dec. 9

Currently, the stock’s trading at a forward price-to-earnings multiple of 18 and a price-to-sales ratio of just under four. This is similar to the numbers that Dollarama’s stock was trading at a year ago.

A concern for investors may be that the stock’s hit hard resistance at the $50 mark for much of the past year. Although there have been brief times when the stock’s been able to get above $50, for most of the year, shares of Dollarama have been trading below $50.

It’s close to that price point today and without a compelling reason for the stock to rally, it’s likely it’ll continue running into that resistance as it rises in price.

Dollarama’s a safe stock but with modest growth investors shouldn’t expect much of a return buying it at its current price. It’s a good buy for stability and a minor 0.4% yield, but investors shouldn’t buy it expecting large returns.

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