Dollar General Corp (DG, Financial) recently experienced a daily loss of -3.84%, contrasting with a slight 3-month gain of 0.57%. With an Earnings Per Share (EPS) of 9.76, investors are contemplating whether the stock is significantly undervalued. This article delves into a valuation analysis to explore this question, inviting readers to consider the comprehensive financial insights that follow.
Company Introduction
Dollar General Corp (DG, Financial), with an extensive presence of over 19,000 locations, is a staple in the rural United States retail landscape. The company is renowned for its economical operations, offering a mix of branded and private-label products at competitive prices. Dollar General's market capitalization stands at $27.90 billion, with sales reaching $38.80 billion. However, a compelling question arises when comparing its current stock price of $127.22 to the GF Value of $273.49, which suggests a significant undervaluation. The following analysis will delve into the financial nuances to unpack Dollar General's intrinsic value.
Summarize GF Value
The GF Value is a unique metric that determines the intrinsic worth of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance projections. When a stock trades below the GF Value Line, it is often considered undervalued, suggesting a potential for higher future returns. Dollar General (DG, Financial) appears to be significantly undervalued, trading at a price markedly lower than the estimated fair value. This valuation indicates that the stock could offer substantial long-term returns above its business growth.
Financial Strength
Assessing a company's financial strength is crucial to mitigate the risk of capital loss. Dollar General's cash-to-debt ratio is a mere 0.02, placing it lower than 94.48% of its peers in the Retail - Defensive industry. This indicates that while the company's financial strength is fair, there are areas of potential concern that warrant careful consideration by investors.
Profitability and Growth
Profitable companies present less risk, and Dollar General has shown a consistent ability to generate profits, with a robust operating margin of 7.17%. This performance is stronger than 84.24% of competitors in its industry. The company's profitability is reflected in its high ranking of 9 out of 10. In terms of growth, Dollar General's 3-year average annual revenue growth of 15.9% outpaces 83.33% of its industry peers, further underscoring the company's robust financial health.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another measure of profitability. Dollar General's ROIC of 8.77 indicates that it is effectively generating cash flow relative to its invested capital, and with a WACC of 4.47, it's creating value for its shareholders.
Conclusion
In summary, Dollar General (DG, Financial) presents a compelling case of being significantly undervalued. The company maintains a fair financial condition, strong profitability, and growth rates that are competitive within the Retail - Defensive industry. To gain a deeper understanding of Dollar General's financial trajectory, one can examine its 30-Year Financials here.
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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.
