Dollar General Corp (DG, Financial) has seen a daily loss of -1.84 % and a 3-month loss of -27.24%. Despite these losses, the company boasts Earnings Per Share (EPS) (EPS) of 9.76. The question that arises is, is Dollar General significantly undervalued? This article presents an in-depth valuation analysis of Dollar General, encouraging readers to delve into the financial details of the company.
Introduction to Dollar General Corp (DG, Financial)
A leading American discount retailer, Dollar General operates over 19,000 stores in 47 states, selling branded and private-label products across a wide variety of categories. The company's stock price currently stands at $117.79 per share, with a market cap of $25.90 billion. However, the GF Value, an estimation of the fair value, is $273.65, suggesting that the stock is significantly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
At its current price of $117.79 per share and the market cap of $25.90 billion, Dollar General stock is believed to be significantly undervalued. As a result, the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength Analysis
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Dollar General has a cash-to-debt ratio of 0.02, which ranks worse than 93.81% of 307 companies in the Retail - Defensive industry. Based on this, GuruFocus ranks Dollar General's financial strength as 5 out of 10, suggesting fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Dollar General has been profitable 10 over the past 10 years. Its operating margin is 7.99%, which ranks better than 86.6% of 306 companies in the Retail - Defensive industry. Overall, GuruFocus ranks the profitability of Dollar General at 9 out of 10, which indicates strong profitability.
Growth is probably the most important factor in the valuation of a company. The 3-year average annual revenue growth of Dollar General is 15.9%, which ranks better than 83.79% of 290 companies in the Retail - Defensive industry. The 3-year average EBITDA growth rate is 18.1%, which ranks better than 71.71% of 258 companies in the Retail - Defensive industry.
ROIC vs WACC
Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Dollar General's ROIC is 9.92 while its WACC came in at 3.77.
Conclusion
In conclusion, the stock of Dollar General is believed to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 71.71% of 258 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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