Are dollar common stocks a good value?
dollar plain (NYSE:DG) closed Thursday at more than $146 per share, up 4%, with shares up about 5% for the day. The catalyst for the discount retailer did not appear to be directly related to the company itself. Rather, the rise in Dollar General stock may be tied to the performance of one of its competitors.
On Thursday, discount retailer Walmart reported strong results for the quarter ended April 30, with net sales up 6% year-over-year and adjusted earnings up 22%. Walmart also raised its sales and profit guidance for the full fiscal year.
The large retailer’s strong results undoubtedly had a carryover effect, as investors are expecting similar results when Dollar General releases its next quarterly earnings results. The next release date is scheduled for May 30th.
back to basics
Like Walmart, Dollar General is a company that performs well in these types of markets where the economy is slowing and inflation is high. With significantly discounted prices compared to other stores, you can take advantage in these more difficult times.
Dollar General stock has generally been a very consistent and steady performer, with a 10-year average annual return of 10.2%. Moreover, 2023 was the first negative year since 2010. In fact, last year was a terrible year for the company, with the stock plummeting about 44%. The company was undergoing a management transition and was subject to fines and lawsuits for overcharging customers and negative reports about its work environment.
So the company decided to get back to its roots by hiring former CEO Todd Vasos, who led the company through a period of tremendous growth before retiring in 2022. About a year after his retirement, he returned to the role of CEO and held the following duties: The company’s “Back to Basics” strategy seeks to invest in stores and people, organize its supply chain and deliver value to customers.
Dollar General posted solid fourth-quarter results and its valuation is so low that it received a significant price target increase from analysts in March. The retailer’s stock has rebounded slightly, up about 4% year to date but up about 14% since its last earnings report in March. So Dollar General stock has fallen slightly since then.
Taking a wait-and-see approach
Dollar General stock still trades at a decent valuation, about 18 times earnings, so it’s likely that investors saw Walmart’s better-than-expected sales performance and recognized an opportunity to buy shares of a similar competitor.
Dollar General could also see a surge in its stock price in the second half of the year if it exceeds sales expectations in a choppy market where it will have to play to its strengths as a price discounter.
We will have to find out more about this discount store’s actions on May 30th, when the first quarter earnings are scheduled to be announced. It’s probably a good idea for investors to take a wait-and-see approach right now.
disclaimer: All investments involve risk. Under no circumstances should this article be taken as investment advice or constitute liability for investment profits or losses. The information in this report should not be relied upon for investment decisions. All investors should conduct their own due diligence and consult their own investment advisors when making trading decisions.
