Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Dollar General Stock: Good for Risk-Averse Investors

Stock MarketsSep 17, 2021 01:00PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. Dollar General Stock: Good for Risk-Averse Investors

Dollar General (NYSE:DG) has benefited from the COVID-19 pandemic, particularly in 2020 as it remained an essential business that stayed open while other businesses shut down. 

This led to a 21.6% revenue increase from January 2020 to January 2021. Now that the pandemic is mostly behind us, DG is expected to have slightly negative earnings growth, and low single-digit revenue growth for 2022, before returning to high single-digit growth. 

We are neutral on Dollar General. (See Dollar General stock charts on TipRanks) 

Growth Catalysts

Dollar General operates in the retail industry, which is expected to grow at a CAGR of 4.5% from 2021 to 2026.

E-commerce is the fastest growing segment of retail, and Dollar General is not known for its e-commerce presence. Despite not being heavy on e-commerce, Dollar General has still been able to consistently grow over the years through its strategy of opening new stores in rural areas where there isn’t much competition. For 2021, Dollar General is on track to open 1,035 retail locations, while closing just 18.

The company is also venturing into healthcare by offering more health products on its shelves, and is planning on offering health services. 

DG’s CEO Todd Vasos said that the reason for the move into healthcare is because about 65% of the company’s stores are located in “health deserts,” where people must drive long distances to get access to basic medical care. 

This strategy makes sense and should help DG fuel future growth. The company recently hired a Chief Medical Officer, indicating that it is serious about this move. 

Measuring Efficiency 

Retailers such as Dollar General need to hold billions of dollars’ worth of inventory in order to keep the business running. Therefore, the speed at which a company can move inventory and convert it into cash is very important in predicting success. To measure DG’s efficiency, we will use the cash conversion cycle which shows how many days it takes to convert inventory into cash. It is calculated by as follows: 

CCC = Days Inventory Outstanding + Days Sales Outstanding - Days Payables Outstanding 

Dollar Generals’ cash conversion cycle is 23 days, meaning it takes the company 23 days for it to convert its inventory to cash. This is better than its closest competitors, Five Below (NASDAQ:FIVE) and Dollar Tree (NASDAQ:DLTR), at 39 and 40 days, respectively. 

DG’s gross profit margins are 32.1%. This figure is better than Dollar Tree’s 30.8% margins, but worse than Five Below’s 35.8%. One important thing to note is that before COVID-19 gave a boost to DG, its gross profit and EBIT margins were on a slow, but steady downward trend, indicating that competition could slowly be chipping away at DG.

Wall Street's take 

According to TipRanks' analyst rating consensus, Dollar General has a Strong Buy rating, based on unanimous 10 buys assigned in the past three months. The average Dollar General price target of $253.78 implies 15% upside potential.

Final Thoughts 

Although Dollar General is a great recession-proof company that should do well over the long term, we are currently neutral due to its low growth, relatively low returns on capital, and slowly declining margins. 

Disclosure: At the time of publication, Stock Bros Research did not have a position in any of the securities mentioned in this article.

​Disclaimer: The information contained in this article represents the views and opinion of the writer only, and not the views or opinion of TipRanks or its affiliates, and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices or performance.

Dollar General Stock: Good for Risk-Averse Investors
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email