Is Dollarama a Safe Stock to Hold During the Coronavirus Pandemic?

Retail’s a dangerous place to invest in these days but one exception to that right now is Dollarama Inc (TSX:DOL). The popular dollar store chain is up 11% this year, outperforming the TSX which is down 5% over the same period.

Dollar stores offer many essentials for customers, and especially while the economy’s in the midst of a recession, stretching budgets is going to be more and more important for Canadians.

On September 2, the Montreal-based company released its second-quarter results for the period ending August 2. It sales for the period were up 7.1% year over year and comparable store sales, excluding those that were closed, grew by 5.4%. Its profit of $142.5 million was also similar to last year’s tally of $143.2 million.

It’s an impressive showing given the impact of COVID-19 on Dollarama’s business, including more safety precautions and temporary wage increases for store employees. Although there was a decline in the number of transactions, customers were making larger purchases, which was a net positive for Dollarama.

The strong results in Q2 are encouraging and show that the company’s business may be resilient even amid a pandemic and a recession. The challenge for investors is whether the stock can climb any higher than where it is right now.

The earnings report did help Dollarama crack the $50 mark in August but last week it finished at $49.50. Staying above $50 has been a challenge for the stock, where it’s faced lots of resistance in the past. And with Dollarama’s stock trading at 28 times earnings, its valuation isn’t cheap. While it may be a stable buy, investors shouldn’t expect to earn much of a return from buying the stock today.