Shares of Dollar General Break Trend as Prices Fall to $231.97.

Discount Store company Dollar General is taking Wall Street by surprise today, falling to $231.97 and marking a -9.3% change compared to the S&P 500, which moved -0.5%. DG is -14.37% below its average analyst target price of $270.91, which implies there is more upside for the stock. As such, the average analyst rates it at buy. Over the last year, Dollar General shares have outstripped the S&P 500 by 29.3%, with a price change of 18.5%.

Dollar General Corporation, a discount retailer, provides various merchandise products in the southern, southwestern, Midwestern, and eastern United States. The company is in the consumer defensive sector. It markets so-called staple goods and services that consumers tend to purchase regardless of their discretionary income. Thus, sales revenue tends to remain relatively unchecked by economic downturns, which in turn can contribute to share price stability. The flipside is that defensive stocks may see comparatively little growth during periods of economic growth.

Dollar General's trailing 12 month P/E ratio is 23.1, based on its trailing Eps of $10.04. The company has a forward P/E ratio of 18.3 according to its forward Eps of $12.71 -- which is an estimate of what its earnings will look like in the next quarter. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2022, the consumer defensive sector has an average P/E ratio of 24.21, and the average for the S&P 500 is 15.97.

It’s important to put the P/E ratio into context by dividing it by the company’s projected five-year growth rate. This results in the Price to Earnings Growth, or PEG ratio. Companies with comparatively high P/E ratios may still have a reasonable PEG ratio if their expected growth is strong. On the other hand, a company with low P/E ratios may not be of value to investors if it has low projected growth.

Dollar General's PEG ratio of 1.93 indicates that its P/E ratio is fair compared to its projected earnings growth. Insofar as its projected earnings growth rate turns out to be true, the company is probably fairly valued by this metric.

An analysis of the company's gross profit margins can help us understand its long term profitability and market position. Gross profits are the company's revenue minus the cost of goods only, and unlike earnings, don't take into account taxes and overhead. Here's an overview of Dollar General's gross profit margin trends:

Date Reported Revenue ($) Cost of Revenue ($) Gross Margins (%) YoY Growth (%)
2022-01-28 34,220,449,000.0 23,407,443,000.0 31.6 -0.5
2021-01-29 33,746,839,000.0 23,027,977,000.0 31.76 3.82
2020-01-31 27,753,973,000.0 19,264,912,000.0 30.59 0.46
2019-02-01 25,625,043,000.0 17,821,173,000.0 30.45 n/a
  • Average gross margin: 31.1 %
  • Average gross margin growth rate: 1.3 %
  • Coefficient of variability (lower numbers indicating more stability): 2.2 %

Dollar General's gross margins indicate that its underlying business is viable, and that the stock is potentially worthy for investment -- as opposed to speculative -- purposes.

When we subtract capital expenditures from operating cash flows, we are left with the company's free cash flow, which for Dollar General was $1,795,351,000.00 as of its last annual report. Over the last 4 years, the company's average free cash flow has been $1,876,468,000.00 and they've been growing at an average rate of 20.7%. With such strong cash flows, the company can not only re-invest in its business, it can afford to offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in DG have received an annualized dividend yield of 0.8% on their capital.

Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Dollar general's P/B ratio is 8.5 -- in other words, the market value of the company exceeds its book value by a factor of more than 8, so the company's assets may be overvalued compared to the average P/B ratio of the Consumer Defensive sector, which stands at 4.09 as of the third quarter of 2022.

Since it has a lower P/E ratio than the sector average, an elevated P/B ratio, and a steady stream of strong cash flows with an upwards trend, Dollar General is likely fairly valued at today's prices. The company has mixed growth indicators because of an average PEG ratio and consistent gross margins with a stable trend. We hope you enjoyed this overview of DG's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.