It will likely come as a surprise to no one that low-cost options tend to do well in times of economic uncertainty. That is why a lot of analysts are looking to Dollarama (TSE:DOL) to potentially hit record highs in the near term. Investors are less certain, meanwhile, as not even the positive analyst sentiment could keep shares from slipping fractionally in Wednesday morning’s trading.
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Analysts were coming out in force; BMO Capital Markets analyst Tamy Chen hiked her price target on Dollarama from $147 to $154 per share. Meanwhile, a recently released research note from RBC Capital Markets’ five-star analyst, Irene Nattel, saw price targets hiked from $147 to $160. In addition, both Chen and Nattel left their ratings on the stock at Outperform.
Nattel’s research note highlighted some of the key points likely to drive those potential share price gains. Nattel pointed out that Dollarama may be hit by a “…broader consumer spending pullback,” but it remains “…the best-positioned Canadian retailer for pinched consumer budgets and the value-seeking spending backdrop that will likely continue into 2025.” Nattel also declared that “…the stock remains highly attractive, despite recent valuation expansion.”
Dollarama’s Shares May Be High-Priced Right Now
Separately, a report from Morningstar suggested that Dollarama’s shares are high-priced right now. Morningstar pointed out that the current fair value estimate on Dollarama is C$106 per share. Given that shares are currently trading at about 39% over the “intrinsic valuation,” that puts Dollarama shares higher than they perhaps should be, particularly given what Morningstar calls “competitive intensity in retail.”
Yet, over the last eight years, notes a report from The Globe and Mail, net profit has cleared the billion-dollar mark and sales have doubled, clearing $5.8 billion. Share prices have more than tripled, and that is with a stock split to factor in back in 2018. There is a lot to like about Dollarama, and even at these prices, it still may have room for more.
Is Dollarama a Good Stock to Buy?
Turning to Wall Street, analysts have a Moderate Buy consensus rating on Dollarama stock based on six Buys and four Holds assigned in the past three months, as indicated by the graphic below. After a 47.01% rally in its share price over the past year, the average Dollarama price target of C$146.94 per share implies 2.09% upside potential.
