Today, Dollar General Corp (DG, Financial) showcased a daily gain of 3.45%, contributing to a three-month growth of 3.37%. With an Earnings Per Share (EPS) of 7.56, the question arises: is Dollar General significantly undervalued? This article delves into the valuation analysis of Dollar General, encouraging readers to explore the depths of its current market valuation.
Company Overview
Dollar General, with its extensive reach of over 20,000 locations, predominantly serves rural America, offering a convenient shopping solution for essential consumer goods. The retailer's compact store format and its focus on low-cost items cater to communities with limited shopping options. Currently, Dollar General's stock is priced at $145.93, significantly below the GF Value of $273.13, suggesting a potential undervaluation. Here's a snapshot of the company's income breakdown:
Understanding GF Value
The GF Value is a proprietary measure assessing the intrinsic value of a stock, incorporating historical trading multiples, a GuruFocus adjustment factor based on past performance, and future business performance estimates. According to this valuation method, Dollar General is currently significantly undervalued. This assessment suggests that the long-term return on Dollar General's stock could substantially exceed its business growth rate.
Financial Strength and Stability
Dollar General's financial strength is crucial for minimizing the risk of capital loss. The company's cash-to-debt ratio is currently 0.03, positioning it lower than 93.49% of its peers in the Retail - Defensive industry. This metric, along with a fair financial strength rating of 5 out of 10, indicates that while Dollar General maintains a reasonable balance sheet, there are areas for improvement.
Profitability and Growth Insights
Dollar General has maintained profitability over the past decade, with an operating margin of 6.32%, which is superior to 80% of its industry counterparts. The company's consistent revenue growth rate of 9.2% annually outperforms 66.44% of competitors. However, its 3-year average EBITDA growth rate of -3.2% indicates potential challenges ahead.
Value Creation Analysis
Comparing Dollar General's Return on Invested Capital (ROIC) of 7.54 to its Weighted Average Cost of Capital (WACC) of 4.89 reveals that the company effectively creates value for its shareholders, as its returns on capital exceed the costs of its capital investments.
Conclusion
Overall, Dollar General (DG, Financial) appears to be significantly undervalued based on its robust profitability and the potential for long-term growth. Despite some financial metrics indicating room for improvement, the company's ability to generate value above its capital costs suggests a promising investment. For a detailed financial overview, explore Dollar General's 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.
