Dollar General Corp (DG, Financial) recently experienced a daily loss of -3.84%, with a modest 3-month gain of 0.57%. Despite these fluctuations, the company boasts an impressive Earnings Per Share (EPS) of 9.76. Investors and analysts alike are keen to understand whether this suggests that Dollar General (DG) is significantly undervalued. The following analysis delves into the valuation of Dollar General, providing insights into the stock's current market position and intrinsic value.
Company Introduction
Dollar General Corp (DG, Financial) stands as a titan in the retail sector, with over 19,000 locations primarily serving rural America. The company has cemented itself as a go-to destination for essential consumables, offering an array of products from food to health and beauty items, predominantly priced at or below $10. With a current stock price of $127.22 and a market cap of $26.70 billion, the key question is how this compares to the GF Value, which estimates the stock's fair value. This analysis will juxtapose Dollar General's financial figures against the GF Value to unravel the stock's true worth.
Summarize GF Value
The GF Value is a proprietary metric that determines the intrinsic value of a stock, incorporating historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. When a stock trades significantly below the GF Value Line, it is deemed undervalued, suggesting a potential for higher future returns. Conversely, a stock trading above this line may be overvalued, indicating poorer future returns. Currently, Dollar General (DG, Financial) appears significantly undervalued with a GF Value of $274.04, suggesting that long-term investors could see substantial returns above the company's growth rate.
Financial Strength
Assessing a company's financial strength is crucial to mitigate the risk of capital loss. Dollar General's cash-to-debt ratio stands at 0.02, which could be a concern as it falls below the industry average. Despite this, the company's overall financial strength is rated as fair, with a score of 5 out of 10 from GuruFocus. This suggests that while there may be some financial risks, Dollar General maintains a stable foundation.
Profitability and Growth
Long-term profitability is a key indicator of a company's investment potential. Dollar General has maintained profitability over the past decade, with an operating margin of 7.99%, outperforming 86.82% of its peers. This strong profitability, coupled with a robust growth profile, underscores Dollar General's competitive advantage in the retail sector. The company's 3-year average annual revenue growth rate of 15.9% and EBITDA growth rate of 18.1% further reinforce its position as a valuable investment proposition.
ROIC vs WACC
The comparison between Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) serves as a measure of a company's efficiency in generating returns on investment. Dollar General's ROIC of 9.92% surpasses its WACC of 4.47%, indicating that the company is effectively creating value for its shareholders.
Conclusion
In conclusion, Dollar General (DG, Financial) is significantly undervalued based on the GF Value, with solid financial health and strong profitability. The company's growth outstrips a majority of its competitors in the Retail - Defensive industry. For a more in-depth look at Dollar General's financials, investors can explore the company's 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, consider using the GuruFocus High Quality Low Capex Screener.
This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
