Dollar General Corp (DG, Financial) recently experienced a daily gain of 2.1% despite a 3-month loss of 38.34%. With an Earnings Per Share (EPS) of 9.76, the stock appears to be significantly undervalued. This article offers an in-depth analysis of Dollar General's valuation, financial strength, profitability, and growth. We invite you to join us as we unravel the intrinsic value of this retail giant.
Company Overview
Dollar General Corp (DG, Financial) is a leading American discount retailer, operating over 19,000 stores across 47 states. The company offers a wide variety of branded and private-label products, with most items sold at everyday low prices of $5 or less. In fiscal 2022, the company generated 80% of its net sales from consumables, 11% from seasonal merchandise, 6% from home products, and 3% from apparel. Despite the stock's current price of $105.96, the GuruFocus Fair Value (GF Value) estimates its intrinsic value to be $273.91, suggesting significant undervaluation.
Understanding the GF Value
The GF Value is a proprietary measure that estimates the intrinsic value of a stock. This measure is derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the fair trading value of the stock. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, it is undervalued, and its future return is likely to be higher.
Currently, Dollar General's stock price is significantly below the GF Value Line, indicating that it is undervalued. This suggests that the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Investing in companies with poor financial strength can lead to a higher risk of permanent loss of capital. Therefore, it's crucial to review a company's financial strength before investing. Dollar General's cash-to-debt ratio stands at 0.02, which is lower than 94.43% of 305 companies in the Retail - Defensive industry. Despite this, Dollar General's overall financial strength is ranked 5 out of 10, indicating fair financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is typically less risky. Dollar General has been profitable for 10 out of the past 10 years, with an operating margin of 7.99%, ranking better than 86.82% of 311 companies in the Retail - Defensive industry. The company's overall profitability is ranked 9 out of 10, indicating strong profitability.
Furthermore, Dollar General's growth has been impressive. The company's average annual revenue growth is 15.9%, ranking better than 83.33% of 288 companies in the Retail - Defensive industry. Its 3-year average EBITDA growth is 18.1%, which ranks better than 72.37% of 257 companies in the Retail - Defensive industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. ROIC measures how effectively a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Dollar General's ROIC is 9.92, and its WACC is 3.85.
Conclusion
In conclusion, Dollar General (DG, Financial) appears to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 72.37% of 257 companies in the Retail - Defensive industry. For more information about Dollar General's stock, check out its 30-Year Financials here.
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