Dollar General (DG) is one of the best (not the best) dollar stores to invest in. Although Dollar General has 11000 stores — which makes it hard to expand exponentially — the company’s management is going a swell job of getting more out of each location. Sales increased 11% last quarter, which isn’t much, but that included a nice 5% bump in same store sales. Merchandising initiatives include adding tobacco to its stores (this began in mid-March) and management has also installed 7000 more coolers into 1600 stores.
When I mentioned DG is not the best dollar store, its because I think Five Below (FIVE) has greater opportunity. FIVE focuses on teens, and tries to get them to buy things $5 at a time. This concept has great growth opportunity, and will be added to my radar.
One Year Chart
DG was such a steal at the beginning of the year. I should have bought it then. I choked. Back on 12/28 when I did my 2012 Q4 research the stock was $43, had a P/E of 13 and I pegged my 2013 Fair Value at $49 (15 times earnings of $3.29).
Notice in the one-year chart that 2013 estimates are now $3.23. So estimates have come down, yet the stock’s gone up. Now the P/E is a hefty 18. I think 18 is a little high.
Fair Value
DG should have a P/E of 16. This $58 stock is worth $52 in my eyes. Upside is limited at thsi point.
Sharek’s Take
Dollar General is a stock that I wish to get for the conservative portion of the Growth Portfolio. I think we can buy and hold DG and make 15% per year. Unfortunately, we can’t do that now because the stock’s a little too high. DG stays on the radar. We will wait for a better deal.
View the Earnings Table here. View the Profit History here.View the Ten Year Chart here.
