Dollar General shares fell by -1.2% during the day's afternoon session, and are now trading at a price of $166.58. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly in terms of its earnings and equity levels.
A Very Low P/E Ratio but Trades Above Its Graham Number:
Dollar General Corporation, a discount retailer, provides various merchandise products in the southern, southwestern, midwestern, and eastern United States. The company belongs to the Consumer Discretionary sector, which has an average price to earnings (P/E) ratio of 22.33 and an average price to book (P/B) ratio of 3.12. In contrast, Dollar General has a trailing 12 month P/E ratio of 15.8 and a P/B ratio of 6.16.
Dollar General's PEG ratio is 3.21, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
Growing Revenues With Increasing Reinvestment in the Business:
| 2020-01-31 | 2021-01-31 | 2022-01-31 | 2023-01-31 | |
|---|---|---|---|---|
| Revenue (MM) | $27,754 | $33,747 | $34,220 | $37,845 |
| Gross Margins | 30.6% | 31.8% | 31.6% | 31.2% |
| Operating Margins | 8.3% | 10.5% | 9.4% | 8.8% |
| Net Margins | 6.17% | 7.87% | 7.01% | 6.38% |
| Net Income (MM) | $1,713 | $2,655 | $2,399 | $2,416 |
| Net Interest Expense (MM) | -$101 | -$150 | -$158 | -$211 |
| Depreciation & Amort. (MM) | -$505 | -$574 | -$641 | -$725 |
| Earnings Per Share | $6.64 | $10.62 | $10.17 | $10.56 |
| EPS Growth | n/a | 59.94% | -4.24% | 3.83% |
| Diluted Shares (MM) | 258 | 250 | 236 | 219 |
| Free Cash Flow (MM) | $1,453 | $2,848 | $1,795 | $424 |
| Capital Expenditures (MM) | -$785 | -$1,028 | -$1,070 | -$1,561 |
| Net Current Assets (MM) | -$10,945 | -$12,287 | -$13,762 | -$15,961 |
| Current Ratio | 1.14 | 1.21 | 1.05 | 1.29 |
| Long Term Debt (MM) | $2,911 | $4,131 | $4,172 | $7,009 |
| Net Debt / EBITDA | 1.3 | 0.93 | 1.3 | 1.95 |
Dollar General has growing revenues and increasing reinvestment in the business, strong margins with a stable trend, and wider gross margins than its peer group. The company also benefits from a strong EPS growth trend, generally positive cash flows, and healthy leverage. Furthermore, Dollar General has just enough current assets to cover current liabilities.
