The “new normal” investing environment we’ve seen come out of the global coronavirus pandemic has resulted in certain sectors or niche businesses outperforming to a greater degree than other secular trends. In many cases, these trends have simply accelerated from pre-pandemic levels. In this article, I’m going to discuss one such Canadian company that fits this description well, Dollarama (TSX:DOL).
As many investors know, Dollarama is the largest dollar store operator in Canada, having grown both organically as well as through a series of acquisitions. The company has consolidated this previously fragmented sector nicely, in the recent past. The dollar store business has continued to perform well during the pandemic.
Items economists would consider “inferior goods” (i.e., value options for consumers) outpacing growth in luxury sales and other discretionary sectors substantially. This trend toward consumer thriftiness, in the context of near-record high household indebtedness in Canada and what some believe is a prolonged recession that is just beginning, is only likely to continue for some time.
While Dollarama does have strong secular tailwinds, from a value perspective, the company isn’t exactly cheap. This stock is trading around 11-times forward earnings, higher than its U.S. peers such as Dollar Tree. I would encourage value investors to thus focus on other companies with secular tailwinds and better balance sheets first.
Invest wisely, my friends.