About Dollar General

Let’s talk about Dollar General stock. However, what better place to start than at a store?

Welcome to Dollar General!

You know you’re home when you’re driving through a rural part of the country or look over on the side of the interstate on that long family trip and see the bumble bee-colored signs.

You pull into the parking lot, see a few carts sparsely separated, and a few horizontal refrigerator machines filled with bags of ice that each cost $2.20 ($2.38 with tax).

If you were in the southern Texas region in the summer of 2021, you could’ve been fortunate enough to have me bag your groceries, toiletries, and whatever else you picked up when galivanting down the aisles of your neighborhood Dollar General.

Boxes everywhere, totes everywhere, in a perpetual state of stocking.

That was me! I miss my friends at my former neighborhood rural Dollar General. Thankfully, however, I was given a pair of Dollar General socks that I still proudly rock from time to time.

Anyways, back to Dollar General!

Two to three employees working at the same time, all stocking shelves and dismantling cardboard boxes while frantically rushing to the front of the store when the slightly unpleasant beeping alarm goes off to inform us that a customer is waiting to check out.

Those were some of the best times of my life (I’m very serious).

After working there for a few weeks, I was curious to know how their stock had performed in the past. I was pleasantly surprised by the stock’s steady, yet considerable climb from $73 in 2017 to $236 in August 2021.

Dollar General operates over 18,000 stores nationwide (more than Walmart and McDonald’s combined), providing food, clothing, beauty products, laundry, and many other essential items to those primarily in low-income and the aforementioned rural areas of the country.

While working at Dollar General might not be someone’s dream job, my coworkers and Dollar General’s stock had one thing in common; they brought me great joy.

Dollar General Financials

Dollar General is nearly a $47 billion retail behemoth with an excellent business model.

The stock itself is the definition of low volatility. With a Beta (measurement of how volatile a stock or other security is) of 0.5 (less than 1 signifies low historical volatility) paired with its steady climb over time, especially when COVID-19 was in full stride, DG was a major “buy and hold” stock in retrospect.

Is it still one today?

Without a doubt.

The company holds a fairly strong balance sheet with total assets of $26 billion and total liabilities of nearly $20 billion. While these numbers might seem too close for comfort for some investors, retail is a tough, debt-driven industry. It’s no surprise that DG has a good amount of debt; it’s just a matter of the company’s ability to pare down their debt down over time.

Mulling over Dollar General’s income statement, their total revenue has remained steady at $8 billion over the past four quarters and thankfully, amidst the current supply chain struggle, their total operating expenses have not substantially increased over the past four quarters as well.

The company’s cash flows appear strong overall and even hints at their current and prospective growth given their consistent yet sustainable outflow of capital expenditures.

It’s valuation time!

Stock Price Valuation

On paper, Dollar General is overvalued across the board of the major “price to…” metrics.

Their current price to earnings ratio is 22.38, slightly crossing over into overvalued territory along with the stock’s annual price to earnings growth (PEG) ratio sitting significantly higher than the industry average.

Updated Stock Price

As of the most recent update of our analysis of Dollar General, the stock has thankfully tumbled down to $200 as of this writing (2/7/2022). While previously trading around $215-$230, the company is now trading at a discount likely due to overall market declines caused by Meta’s recent cratering.

While the company’s share price was objectively inflated, our team believes there is tangible, promising growth behind these numbers.

In fact, an intrinsic value calculation pegs Dollar General’s current intrinsic value just south of $290.

The company is continuously growing and taking customers away from Walmart and other major retailers by beating their supercenters with small, cheap, easy to plant stores in rural America.

At the onset of the pandemic, while other stores were closing at a rapid pace, Dollar General did the opposite.

In fact, the company is in the process of opening 1,000 new stores.

That is rapid growth.

Given that they are expanding when many other retailers aren’t or are unable, they are setting up the company (and its share price) to prosper during economic downturns and uncertainty and for when the pendulum swings back, and the economy eventually stabilizes.

Recession Proof

The generally recession proof nature of Dollar General’s business model also instills confidence in our team that the company’s slightly high valuation was worth paying a premium for before DG’s share price rises without you.

As of 2/7/2022, we see current opportunity in investing before the Dollar General discount train leaves the station.

Margins and Financials

Dollar General maintains annual net profit margins slightly higher than the competition (7.19% as opposed to the industry’s 6.31%) and has achieved solid annual returns on equity, assets, and investment (on par with the industry overall).

Finally, its soothing to an investor’s ears when they know Dollar General’s “” (according to TD Ameritrade’s platform). This means the company should have little to no problem paying off its debt.

The Future of Dollar General

Not only is Dollar General a pioneer in the recession-proof retail market and opening new stores daily, but they are also trying out new concepts, attempting to directly take more cuts out of bleeding retail giants.

Welcome to Dollar General Market.

Instead of a few freezers scattered on the perimeter of stores, the company’s new market concept turns these stores into half market, half retail concepts. While frozen dinners will still likely be available at Dollar General’s everywhere (don’t worry!), these new markets offer customers in sparsely populated communities healthier and less “processed” dining options such as fresh produce and meat.

We love this new market concept, especially given the consumer’s need to find less expensive healthy food options in the current inflation-filled environment.

As long as the company is strategic as to where they build out their markets and continues to innovate in the process, we see a bright future and more market share being seized by Dollar General.

As briefly mentioned before, Dollar General is one of the more defensive stocks when recessions or periods of economic uncertainty roll around.

When consumers can’t afford to dine out or get groceries at the Walmarts and Targets of the world, dollar stores such as Dollar General (and competitors Family Dollar and Dollar Tree) and most importantly, customers, stand to benefit.

Dollar General has also inked a partnership deal with DoorDash to offer customers the ability to get in-store products delivered to their door!

Our team feels fine about this deal, as it ultimately gets products from Dollar General stores to customers. We don’t see this as being as big of a success as their market concept, however, allowing customers to buy products as easily as possible is the name of the game!

Dollar General also offers customers a buy-online-pickup-in-store (BOPIS) option.

While we like this strategy as well, our team believes that people likely enjoy perusing their neighborhood DG and stocking up themselves as opposed to simply picking up their order and leaving shortly thereafter.

Should you buy Dollar General stock?

Low labor costs, low operating and store opening costs, slowly extracting market share from the hands of major grocery giants and retailers.

Dollar General is doing this and a lot more.

From frothily to swimmingly, Dollar General is continuing to position the company to prosper and provide for customers across the nation. Given their strong financials and notable past and present growth, we give the company a “buy” rating.

DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed as or understood as professional or formal financial and/or investment advice. We are simply expressing our opinions regarding a publicly traded entity.