With a daily loss of 5.94% and a 3-month loss of 19.24%, Dollar General Corp (DG, Financial) presents an intriguing case for investors. The company's Earnings Per Share (EPS) stands at 10.61, raising the question: Is the stock significantly undervalued? This article aims to provide an extensive valuation analysis of Dollar General (DG). We invite you to join us in this exploration.
A Snapshot of Dollar General
Dollar General Corp (DG, Financial), a leading American discount retailer, operates over 19,000 stores across 47 states. It offers a variety of branded and private-label products across a wide range of categories. Approximately 80% of its net sales in fiscal 2022 came from consumables, with seasonal merchandise, home products, and apparel accounting for the remainder. The company's current stock price stands at $130.27, while the GF Value, an estimation of fair value, is $277.98. So, is Dollar General undervalued? Let's delve deeper to find out.
Understanding the GF Value
The GF Value is a proprietary measure that represents the intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the stock's ideal fair trading value. If a stock price significantly deviates from the GF Value Line, it indicates whether the stock is overvalued or undervalued.
For Dollar General, the stock is believed to be significantly undervalued based on the GF Value calculation. With a market cap of $28.60 billion, the company's stock is likely to provide a higher return in the long term due to its significant undervaluation.
Assessing Dollar General's Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Hence, it's crucial to review the financial strength of a company before investing. Dollar General's cash-to-debt ratio is 0.02, ranking lower than 94.17% of companies in the Retail - Defensive industry. Despite this, Dollar General's overall financial strength is fair, with a GuruFocus rank of 5 out of 10.
Examining Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. Dollar General has been profitable for 10 out of the past 10 years, with an operating margin of 8.65%, ranking better than 88.89% of companies in the Retail - Defensive industry. The company's average annual revenue growth is 15.9%, and its 3-year average EBITDA growth is 18.1%, both of which rank better than most companies in the industry.
ROIC vs WACC: Creating Value for Shareholders
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate profitability. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Dollar General's ROIC was 10.93, while its WACC came in at 3.75.
Conclusion
In conclusion, the stock of Dollar General (DG, Financial) is believed to be significantly undervalued. The company's financial condition is fair, its profitability is strong, and its growth ranks better than 71.21% of companies in the Retail - Defensive industry. To learn more about Dollar General stock, you can check out its 30-Year Financials here.
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