Dollar General has been a standout stock over the past decade, delivering significant achievements and consistently outperforming the S&P 500. Despite the challenging start to 2023, this discount retailer has proven to be a reliable investment option, especially during times of inflation and economic downturns.
With a focus on providing consumers with essential items at affordable prices, Dollar General has witnessed substantial growth, recently reaching a milestone of 19,000 stores. While other companies may struggle during difficult economic conditions, Dollar General’s defensive business model continues to attract customers and generate growth.
A notable aspect of Dollar General’s performance is its ability to consistently surpass market expectations. Out of the past ten years, the company has only trailed behind the S&P 500 in 2016 and 2021. Even during market declines in 2018 and 2022, Dollar General managed to deliver positive returns that far exceeded the performance of the broader market. Additionally, the stock has achieved positive gains for investors in each of those years, disregarding the impact of its dividend, which is on par with the average S&P 500 stock.
The success of Dollar General as an investment can be credited to its business model, which focuses on offering low prices to a broad customer base. By selling essential items, the company remains less vulnerable to macroeconomic conditions, as its products consistently remain in demand.
However, the current year has presented challenges for Dollar General’s stock. Since January, its shares have declined by 35%, necessitating a significant rebound in consumer sentiment for the stock to close the year on a positive note.
The company’s first-quarter earnings report in June disappointed investors, leading to a 20% drop in share prices. Dollar General reported sales of $9.34 billion for the period ending May 5, falling short of Wall Street forecasts of $9.46 billion. Earnings per share also missed expectations by four cents, standing at $2.34. The company revised its guidance for the fiscal year, projecting same-store sales growth of no more than 2%, compared to the earlier forecast of up to 3.5% growth.
Dollar General attributes its current challenges to prevailing economic conditions, particularly rising inflation, which impacts its customers. While the customer base showed resilience last year, the persistent inflation and potential interest rate hikes have taken their toll. Despite the recent slowdown, Dollar General has maintained positive year-over-year revenue growth, further highlighting its resilience.
Although Dollar General’s stock may underperform the soaring S&P 500 this year due to the latter’s focus on tech and artificial intelligence, market dynamics can change rapidly. As the inflation rate slows down, coupled with the absence of a recession, Dollar General’s business and stock may stage a recovery. Just as the shares plummeted due to poor earnings, they have the potential to rebound strongly if the company delivers stronger results later in the year.
Ultimately, the long-term performance of Dollar General’s business matters more than short-term stock fluctuations. With its established position as a leading retailer in the country and consistent revenue growth, Dollar General presents a viable long-term investment opportunity. As the economy recovers, this stock may regain its appeal. Currently trading near its 52-week low and priced at 15 times earnings, Dollar General offers considerable value. While it may be lagging behind the S&P 500 at present, this could be an opportune moment to consider purchasing the stock.
In conclusion, Dollar General has a proven track record as an investment, consistently outperforming the market and displaying resilience in challenging economic conditions. However, the stock’s performance in 2023 has been lackluster. Investors should closely monitor the performance of the company and be aware of potential shifts in the market. As always, a long-term perspective is crucial when considering any investment opportunity.
