Dollar General Stock Is on Sale Now, Good Time to Buy

Dollar General (NYSE:DG) stock has not been a “dollar store” for some time. I have been covering the company for nearly a decade, since before it lost the fight to buy Family Dollar, eventually acquired by DollarTree (NASDAQ:DLTR).

Dollar General (DG) store front with yellow store sign, midday
Source: Jonathan Weiss / Shutterstock.com

Dollar General is a general store. It matches merchandise to markets. Where it sees opportunity and can get a license, it sells liquor. Where people are poor and don’t buy bananas, it sells pork rinds.

The result has been envious success. In its most recent quarterly earnings release, operating profits were 7.8% of sales. That’s even better than Target (NYSE:TGT), which is the new hotness among retailer analysts.

As the world adjusts to high gas prices and inflationary pressures, Dollar General could do even better.

The New DG

Dollar General has been quietly building a second chain, whose growth is now accelerating. It’s called PopShelf, and shoppers I know love it.

The concept was launched in October 2020 and it’s now up to 50 units. The company hopes to have 1,000 in place in three years. Some will be inside existing DG locations. Others will be free-standing.

PopShelf  is a cross between Five Below (NASDAQ:FIVE) and TJX’ (NYSE:TJX) Home Goods. Most are in prosperous suburbs, and appeal to women who like organizing. Dollar General is starting the chain in the Southeast but has plans to spread it across the country.

Dollar General also owns a third chain, DGX, a grab-and-go store in central cities. Its slogan is “Xpress for Less.”

The Original DG

The original Dollar General chain has over 17,000 stores and opened about 500 between February and October of last year. The company next reports March 17, with $2.56/share of net income on $8.69 billion in sales expected.  The stock is down over the last three months, partly due to economic conditions, but also because of a rare miss on the third quarter. But it still expects earnings of about $10/share for the full year, on sales of about $34 billion.

Dollar General stock isn’t cheap. Despite being down 13% for the year to date, you’re paying over $1.35 for each dollar of sales, with a price to earnings ratio of about 20. Few retailers get that kind of premium. It’s a higher price to sales ratio, but just half the PE, of Costco Wholesale (NASDAQ:COST), whose stock it was tracking until recently.

The man behind this success is Todd Vasos, who may be the best retailer you’ve never heard of. He joined the company in 2008 after a career at various pharmacy companies and was named CEO in 2015.  Harkening to his roots, he recently said Dollar General stores are in “health deserts”  and hired a chief medical officer.

Vasos’ employment contract was due to end last year. This worried me.  The company launched a nationwide search for his successor, but his contract carries an automatic yearly renewal. Little has been written about the search since early in 2021.

The Bottom Line

When a good company’s stock goes on sale, it’s a good time to buy it. DG stock is on sale right now.

I expect accelerating top-line growth, thanks to the new chains and expansion into health care. Dollar General is also the most profitable general retailer out there. I don’t expect that to change.

None of the nine analysts following Dollar General at Tipranks says sell, and 7 have it on their buy lists. Their price target represents a modest 17% gain. DG stock is now at its lowest price since last May. That’s why I finally got some.

On the date of publication, Dana Blankenhorn held a long position in DG. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.

Dana Blankenhorn has been a financial and technology journalist since 1978. He is the author of Technology’s Big Bang: Yesterday, Today and Tomorrow with Moore’s Law, available at the Amazon Kindle store. Write him at danablankenhorn@gmail.com, tweet him at @danablankenhorn, or subscribe to his Substack.


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