Two discount retailers, Dollar Tree (NASDAQ:DLTR) and Dollar General (NYSE:DG), just reported their earnings. These extreme discount stores, sometimes called “dollar stores,” sell low-priced personal items. Such stores are often popular with a variety of demographic groups, and their best customers are not necessarily low-income or tight-fisted shoppers, as one might imagine. As I noted in a recent article, Dollar Tree has gained a following among the millennial generation which helped fuel the rise of Dollar Tree stock over the last several years. Conversely, Dollar General has been less popular with the millenials, causing Dollar General stock to underperform the shares of its competitor.

Historically, the two stores have targeted somewhat different market segments. Dollar General focused on providing extreme discounts and gave customers value for their money but did not focus on selling items for a certain price. On the other hand, Dollar Tree mostly stuck to items they could sell for $1. However, since Dollar Tree acquired Family Dollar, it now owns a chain of stores with largely the same retail strategy as Dollar General. This has resulted in more direct competition between the retailers. Dollar General stock has a market capitalization of $28.3 billion and owns 15,000 stores. Dollar General is larger than Dollar Tree, which owns over 14,800 stores. Dollar Tree stock has a significantly smaller market capitalization of $20 billion.

Dollar General Stock

The company reported earnings per share of $1.52. That beat expectations by 3 cents per share. and represented a massive, 40.7% year-over-year surge. Dollar General’s revenue surged 10.5% YoY to $6.44 billion, beating estimates by $70 million.

For fiscal 2018, the company reiterated its earnings guidance of  $5.95-$6.15  It expects its sales growth to rise 9%-9.3% YoY. DG predicts that its same-store sales growth will come in around 2.55%-2.9%.

Based on DG’s guidance, the forward price-earnings ratio of Dollar General stock is about 17.6. Analysts predict that the company’s bottom line will surge 32.6% this year and 10.6% in 2019. Over the next five years, analysts predict that its profit will rise an average of 15.9% per year. The company’s results appeared to have little effect on Dollar General stock as the shares fell by less than 1% in morning trading.

Dollar Tree Stock

Unlike its peer, Dollar Tree plunged in morning trading as the company’s EPS came in at $1.15, slightly below analysts’ consensus outlook of $1.16.. After the opening bell, DLTR stock fell by more than 11%. Despite the EPS miss, Dollar Tree’s EPS still rose 16% YoY. The retailer’s revenue increased 4.75% to  $5.53 billion, matching analysts’ consensus.

The company also narrowed its full-year earnings and revenue outlook. Dollar Tree provided full-year EPS guidance of $4.85-$5.05, versus its previous outlook of $4.80-$5.10 per share. Likewise, the retailer now projects full-year revenue of $22.75 billion-$22.97 billion in revenue, versus its previous top-line outlook of $22.73 billion-$23.05 billion.

The swoon in Dollar Tree stock brings its valuations more in line with those of Dollar General stock. DLTR stock now trades at a forward price-earnings ratio of around 16.8.

Comparing Dollar General Stock With Dollar Tree Stock

Of the two retailers, Dollar General clearly reported better results. Not only did DG beat estimates, but it also grew its earnings by over 40%, compared to only about 16% for DLTR. Likewise, analysts expect Dollar General to grow much more quickly this year. Most blame the gap between the companies on Family Dollar. Although Dollar Tree acquired the discount chain more than three years ago, Family Dollar stores have not performed as well as Dollar Tree stores. Same-store sales grew by 3.7% at Dollar Tree, while Family Dollar’s same-store sales were unchanged.

Still, I’m optimistic about extreme discounters in general. Much of my optimism stems from the fact that the discounters’ sales are increasing during an economic growth cycle. The current bull market has broken records, likely putting the economy in the late stages of this growth cycle. If a downturn occurs, more cash-strapped customers will probably visit these stores. As a result, I don’t expect Dollar General stock or Dollar Tree stock to drop dramatically anytime soon.

Also, much like the battle between the dollar stores’ higher-priced peers Walmart (NYSE:WMT) and Target (NYSE:TGT), I expect the race between Dollar General and DLTR to remain competitive. Dollar Tree grew its income by an average of 16% per year over the last five years, while Dollar General’s profit jumped 11.8% over the same period.

However, over the next five years, Wall Street predicts that DG’s profit will jump, 15.9%, while DLTR’s bottom line is expected to rise only 13.6%. Comparing forward price-earnings ratios, the multiple of DG stock is about 4.8% higher. Since investors will pay only 4.8% more for Dollar General stock, while the company’s profit is expected to increase 16.9% more than DLTR, DG stock has the edge.

Now, the ball has fallen into Dollar Tree’s court, or, more specifically, Family Dollar’s court.  Dollar Tree stores are still the strongest performers in the sector. However, Family Dollar is weighing on the performance of DLTR stock. The Family Dollar stores have so far failed to beat Dollar General at its own game. Now the pressure falls on DLTR to either improve its subsidiary, convert its stores to Dollar Tree stores, or spin it off. I look forward to seeing what happens.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks. You can follow Will on Twitter at @HealyWriting.