The Canadian stock market ended 2017 near a record high. Many energy and mining stocks had a disappointing year, but financials, utilities, consumer stocks and the nascent cannabis sector more than picked up the slack.

But as most Canadian investors know, 2018 has not been so positive, with the TSX Composite Index recently sliding to its lowest level since mid-2016

The drop has seen some of 2017’s TSX leaders fall back to earth. We decided to take a close look at three of those fallen stars, examine what went wrong, and what it will take for them to bounce back.

Dollarama Inc. (DOL.TO)

Shares of the Montreal-based discount retailer rose almost 60 per cent in 2017, as the company continued to add locations and grow sales. However, 2018 was a much different story with Dollarama’s shares plummeting 39.48 per cent as of Friday.

Jason Del Vicario, portfolio manager and investment advisor at HollisWealth, says “when growth slows for a growth stock, the market can be cruel,” as the valuation compression to less growth can easily see a stock slide 20 to 40 per cent. 

He notes Dollarama’s growth has slowed, and as a result the premium valuation assigned to it by the market has been reduced, and the stock has sold off heavily.             

Despite the rocky 2018, Del Vicario is optimistic about Dollarama’s chances for a rebound in 2019.

He says for the company to be successful in the new year it “simply needs to continue to execute its business plan.” He is looking forward to hearing more details about the retailer’s Latin American Dollar City venture, in which Dollarama has the option of acquiring a controlling interest in 2020.

Spin Master Corp.  (TOY.TO)

It’s the company behind Paw Patrol, one of the most successful kids’ franchises of this decade. Toronto-based Spin Master also makes popular toys such as Hatchimals and Airhogs. Enthusiasm over the properties helped lift its stock almost 70 per cent in 2017. Those shares lost some altitude in 2018, falling almost 29.19 per cent.

“It’s one of the great Canadian success stories that very few people know by name,” according to Peter Imhof, vice-president and portfolio manager at AGF Investments.

He says the entire toy industry took “quite a hit” after Toys “R” Us closed up shop in the United States, which caused significant inventory problems. Imhof notes Spin Master performed well operationally in 2018, with record earnings and revenue. He says what went wrong for the company was the price-to-earnings multiple on its stock was quite high and expectations for growth from the analyst community was too aggressive.

Imhof says that in order for Spin Master shares to get going again in 2019 the company will have to show that it is able to accelerate earnings growth. He notes the relaunching of the Bakugan toy line will need to be a success in order for the market to reward Spin Master shares with a higher multiple.

WestJet Airlines Ltd. (WJA.TO)

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The Calgary-based discount airline had a solid 2017, with its shares rising 14 per cent. But 2018 proved to be much more challenging, as the airline’s stock plunged 32.81 per cent.

Analyst Helane Becker at Cowen Inc. calls it a “humbling year” for WestJet, as the company broke its 13-year streak of recording quarterly profits. She notes WestJet faced rising fuel costs, labour instability, and an intense competitive environment, while trying to develop its new Swoop brand and prepare for the use of Boeing 787 planes.

Analyst Ben Cherniavsky at Raymond James argues that WestJet is now a “show me” story, with considerable risk. However he says WestJet’s current stock price reflects much of that risk, with the company trading at book value and at a discount to its peers. He believes 2018 was plagued by a number of one-time events – particularly labour tension – that are unlikely to recur in 2019. And he also notes recent relief in oil prices, although coming at a cost to WestJet’s core Alberta market, will likely provide some support to earnings if the trend is sustained.