When Should You Buy Dollarama Inc. (TSE:DOL)?

By
Simply Wall St
Published
August 26, 2021
TSX:DOL
Source: Shutterstock

Dollarama Inc. (TSE:DOL) saw a double-digit share price rise of over 10% in the past couple of months on the TSX. With many analysts covering the large-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, could the stock still be trading at a relatively cheap price? Let’s examine Dollarama’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

Check out our latest analysis for Dollarama

What's the opportunity in Dollarama?

According to my valuation model, Dollarama seems to be fairly priced at around 2.13% above my intrinsic value, which means if you buy Dollarama today, you’d be paying a relatively reasonable price for it. And if you believe that the stock is really worth CA$56.99, there’s only an insignificant downside when the price falls to its real value. What's more, Dollarama’s share price may be more stable over time (relative to the market), as indicated by its low beta.

What kind of growth will Dollarama generate?

earnings-and-revenue-growth
TSX:DOL Earnings and Revenue Growth August 27th 2021

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. Dollarama's earnings growth are expected to be in the teens in the upcoming year, indicating a solid future ahead. This should lead to robust cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? DOL’s optimistic future growth appears to have been factored into the current share price, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at the stock? Will you have enough conviction to buy should the price fluctuates below the true value?

Are you a potential investor? If you’ve been keeping an eye on DOL, now may not be the most optimal time to buy, given it is trading around its fair value. However, the optimistic prospect is encouraging for the company, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

So if you'd like to dive deeper into this stock, it's crucial to consider any risks it's facing. At Simply Wall St, we found 2 warning signs for Dollarama and we think they deserve your attention.

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