Is Dollar General Stock a Good Value?

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Dollar General (NYSE:DG) was on the move on Thursday, with its share price rising some 5% during the day and finishing at over $146 per share, up 4%. The catalyst for the deep-discount retailer didn’t appear to be anything related directly to the company itself; rather, the rise in Dollar General stock may have been tied to the performance of one of its rivals.

On Thursday, discount retailer Walmart posted strong earnings for the quarter ended April 30, as its net sales rose 6% year over year while its adjusted earnings climbed 22%. Walmart also raised its revenue and earnings guidance for the full fiscal year.

The big-box retailer’s robust results undoubtedly had a carry-over effect, as investors are hoping for similar results when Dollar General reports its next set of quarterly earnings results. That next release is scheduled for May 30.

Back to Basics

Like Walmart, Dollar General is a company that performs well in this type of market, in which the economy is slowing down and inflation is high. Its deep-discount pricing compared to other stores gives it an advantage during more challenging times.

Dollar General stock has generally been a very consistent, steady performer, as it has a ten-year average annualized return of 10.2%. Additionally, 2023 was its first negative year since 2010. In fact, last year was a horrible year for the company as its stock price plummeted some 44%. The company had been going through a management transition and was hit with fines and lawsuits for overcharging customers and negative reports about its workplace conditions.

Thus, the company decided to go back to what worked, hiring former CEO Todd Vasos, who had led the company during a period of tremendous growth before retiring in 2022. After about a year of retirement, he was back at the helm, executing on the company’s “Back to Basics” strategy to invest in its stores and workforce, clean up its supply chain, and provide value for customers.

Dollar General had a solid fourth quarter, and given that its valuation had plunged so low, it got a slew of price-target increases from analysts in March. The retailer’s stock price has bounced back up a bit, rising about 4% year to date, but it had been up by about 14% after its last earnings report in March. Thus, Dollar General stock has fallen a bit since then.

Taking a wait-and-see approach

Dollar General stock is still trading at a decent valuation, about 18 times earnings, so investors likely saw the better-than-expected sales numbers for Walmart and recognized an opportunity to buy shares in a similar rival.

If Dollar General also exceeds sales projections in a choppy market that should play to its strengths as a deep discounter, its stock could surge in the back half of this year.

We should find out more about where the discount retailer stands on May 30, when the company is due to report its first-quarter earnings results. It would probably be a good idea for investors to take a wait-and-see approach right now.


Disclaimer: All investments involve risk. In no way should this article be taken as investment advice or constitute responsibility for investment gains or losses. The information in this report should not be relied upon for investment decisions. All investors must conduct their own due diligence and consult their own investment advisors in making trading decisions.