Where Will Dollar General Stock Be in 1 Year?

Where Will Dollar General Stock Be in 1 Year?

The equity of Dollar General (DG -1.54%) underwent a 3% plunge on the 16th of March after the company disclosed its latest earnings report. In the fourth quarter of fiscal 2022, culminating on February 2, the discounted retailer’s net sales soared by 17.9% year over year to a staggering $10.2 billion. Nevertheless, it failed to meet the analysts’ expectations by $40 million. Most of the increase can be attributed to the opening of new stores and the extended week compared to the same period in the previous year. Meanwhile, same-store sales, which exclude new stores and the added week, escalated by 5.7%. The diluted earnings rose by 15.2% to $2.96 per share and exceeded the consensus forecast by two cents.

Throughout the entire fiscal year, Dollar General observed a surge in net sales by 10.6% to $37.8 billion, with a 4.3% increase in same-store sales and a 5% growth in diluted EPS, raising the total to $10.68. The three aforementioned growth rates accelerated from fiscal 2021, when the company struggled to keep up with its pandemic-induced growth spurt in fiscal 2020.

While Dollar General has seen a healthier rate of expansion than many of its contemporaries in the retail sector, its stock has remained relatively stagnant over the last 12 months. In this regard, let us examine its business model, growth rates, and valuations to determine whether it will ascend in value this year.

A business model impervious to recession Dollar General should not be mistaken for its peer Dollar Tree (DLTR -1.34%), which also owns Family Dollar. Dollar Tree’s stores are typically located in urban areas, whereas Dollar General’s establishments are predominantly in rural areas where large retailers like Walmart (WMT 0.81%) and other similar outlets are few and far between.

Dollar General is not a conventional “dollar store” that sells all of its products for one dollar. Instead, it sells most of its products at lower prices than major stores like Walmart and online retailers like Amazon (AMZN -1.09%).

Dollar Tree maintained the one-dollar pricing strategy for its products for 35 years, until it raised its prices to $1.25 at the end of 2021. Conversely, Family Dollar, which Dollar Tree procured in 2015, does not abide by such strict pricing rules. However, it has repeatedly struggled to keep pace with Walmart and other discount retailers in oversaturated regions.

Dollar General has persisted in expanding its business despite the retail apocalypse that annihilated many of its brick-and-mortar peers over the previous decade. From fiscal 2012 to fiscal 2022, it augmented its store count from 10,506 to 19,104 locations. Walmart briefly challenged Dollar General with its smaller Walmart Express stores, but it eventually shuttered the failing banner and sold 41 of the remaining locations to Dollar General in 2016.

Dollar General’s net sales escalated at a compound annual growth rate (CAGR) of 9% from fiscal 2012 to 2022, even as it endured the trade war, COVID-19 pandemic, and inflationary headwinds. Meanwhile, its EPS increased at a CAGR of 14%. Additionally, it repurchased over 30% of its shares during the previous decade and began paying dividends in 2015, which it subsequently increased annually.