Today we are looking at Dollar General Corporation (NYSE: DG), to determine if you should buy DG stock. We will look at DG financial ratios, analyst ratings, and current valuation to determine a DG forecast and price.
What Does DG Do?
Dollar General Corporation, a discount retailer, provides various merchandise products in the southern, southwestern, Midwestern, and eastern United States. It offers consumable products, including paper and cleaning products, such as paper towels, bath tissues, paper dinnerware, trash and storage bags, disinfectants, and laundry products; packaged food comprising cereals, pasta, canned soups, fruits and vegetables, condiments, spices, sugar, and flour; and perishables.
DG Stock Analysis and Forecast
Dollar General Corporation Competition and Comparables
In order to undergo a comparable analysis (to determine DG stocks value), we need to first outline who DG’s competitors are.
These competitors need to be publicly listed, have valid financial metrics/multiples, operate in a similar manner to DG, and have a market cap similar to DG (if possible).
By keeping this in mind, I found the following list of companies to be some of DG stocks closest competitors:
KDP, KMB, STZ-B, STZ, GIS, SYY, ABEV, HSY, CL, ADM
DG Stock News and Information
Recent news
DG recently released their Q1 2022 financial report. This report was fantastic as they beat their EPS estimates by $0.10 and increased their guidance for the rest of the year. To read more about DG’s Q1 2022 financial report, you can do so here.
Analysis of Dollar General Corporation Stock Performance and Financial Ratios
- DG Revenues: In FY 2022, DG experienced a yearly increase in revenues of $473.61M (or 1.4%) resulting in a total revenue figure of $34.22B.
- DG Cost of Revenues: In FY 2022, DG experienced a yearly increase in their cost of revenues of $379.47M (1.65%), resulting in a total revenue figure of $23.41B. Since the increase (of 1.65%), in DG’s cost of revenue was greater (by 0.24%) than the increase (of 1.4%) in DG’s revenues, we should expect that DG experienced an decrease (roughly -0.24%) in their FY gross profits.
- DG Gross Profit: In FY 2022, DG experienced a yearly increase in their gross profit of $94.14M (or 0.88%) resulting in a total gross profit of $10.81B. This decrease is inconsistent with our conclusion from the comparison of revenues and cost of revenues between FY and FY, however both results revolve around 0%.
- DG EBITDA: In FY 2022, DG experienced a yearly decrease in their EBITDA of $-267.01M (or -6.47%) resulting in a total EBITDA of $3.86B. This decrease (of -6.47%) stems from the fact that DG experienced a increase in their gross profits of 0.88% (as we saw in the previous bullet point).
- DG Net Income: In FY 2022, DG experienced a yearly decrease in their net income of $-255.82M (or -9.64%) resulting in a total net income of $2.4B.
- DG EPS: As a result of DG’s decrease in net income of $-255.82M, DG’s EPS also decreased (by $-0.46) from $10.7 in FY 2021 to $10.24 in FY 2022
Overall, DG had a slightly poor 2021 financial performance. However, has their recent performance been enough to bring this back?
- DG Revenues: In Q4 2021, DG experienced a quarterly decrease in revenues of $-1.25M (or -0.01%) resulting in a total revenue figure of $8.52B.
- DG Cost of Revenues: In Q4 2021, DG experienced a quarterly increase in their cost of revenues of $52.81M (0.9%), resulting in a total revenue figure of $5.95B. Since the increase (of 0.9%), in DG’s cost of revenue was greater (by 0.91%) than the decrease (of -0.01%) in DG’s revenues, we should expect that DG experienced an decrease (roughly -0.91%) in their Q4 gross profits.
- DG Gross Profit: In Q4 2021, DG experienced a quarterly decrease in their gross profit of $-54.06M (or -2.06%) resulting in a total gross profit of $2.57B. This decrease is consistent with our conclusion from the comparison of revenues and cost of revenues between Q4 and Q3.
- DG EBITDA: In Q4 2021, DG experienced a quarterly increase in their EBITDA of $135.19M (or 16.33%) resulting in a total EBITDA of $963.04M. This increase (of 16.33%) stems from the fact that DG experienced a decrease in their gross profits of -2.06% (as we saw in the previous bullet point).
- DG Net Income: In Q4 2021, DG experienced a quarterly increase in their net income of $110.4M (or 22.67%) resulting in a total net income of $597.43M.
- DG EPS: As a result of DG’s increase in net income of $110.4M, DG’s EPS also increased (by $0.5) from $2.09 in Q3 2022 to $2.59 in Q4 2021
Overall, it seems as though DG had a better financial performance (due to EPS beat of $0.5) as many of their financial metrics grew, most notably their EPS (by $0.5), as well as their net income (by $110.4M), and other metrics (as you can tell from the above bullet points).
Is DG Share Dilution an Issue?
As part of their Q4 2022 earnings release, DG stated that they currently have 231.08M Shares Outstanding (weighted average), which is down -1.41M shares (from 232.49M shares outstanding in Q3 2022). This is great to see as an investor as your shares will increase in value the longer you are holding.
Furthermore, DG stock has up to 1.53M of shares that they can issue (thereby diluting DG’s stock). This maximum dilution for the period would only have a dilutionary effect on DG of 0.62%, this is essentially negligible, and in the worst case will offset the shares DG bought back throughout the year.
Latest DG Stock Analyst Ratings
Here is the current analyst rating distribution for DG. In total there are 29 DG stock analyst ratings.
Analyst Ratings have provided relatively strong indicators of future price movement, which is why they are used to determine if DG stock is a buy or sell
DG Stock Rating and Forecast
Currently, we have 3 financial ratings that help investors get a general idea of a company’s valuation. These 3 metrics include DCF, ROE, and P/E, which are very common in the investing/valuation climate.
Firstly, DG stock has a DCF rating of 5 — Very Strong. DCF ratings determine the value behind a company based on their financial projections, expectations, and discount rate (time value of money). This is one of the most used valuation models in the stock market, and thus a high level of importance should be associated with this rating.
Secondly, DG stock has an ROE rating of DG’s current ROE is 38.64%, which justifies their rank of 3 — Neutral. ROE shows us how good (or bad) a company is at using their shareholders funds to generate money (returns). ROE is most useful when compared against the industry average, which is currently 56.62%.
Lastly, DG stock has a P/E rating of 5 — Very Strong. DG stock price to earnings ratio is currently 19.27 which justifies their rank of 5 — Very Strong. Price to Earnings is the most commonly found financial metric and is best used when comparing a company’s p/e to the industry average. DG operates in the Discount Stores industry, which currently has an average P/E of -104.86.
Overall, based on the 3 previously mentioned fields, DG stock has been given a comprehensive rating of 5 — Very Strong. This rating implies that they are very healthy financially.
DG Stock Price Prediction and Valuation
The Latest DG Ratings
As we know, DG stock has been given an overall rating of 5 — Very Strong. This implies that DG is sound fundamentally and is a good candidate for being “undervalued”. With this in mind, let’s proceed.
DG Price Forecast Using Comparable Analysis
- Price to Book (P/B): DG’s current P/B ratio is 7.23, compared to the average P/B ratio of DG’s peers being 14.28. This implies that DG is undervalued and their share price should change by a factor of 97.53% to be at fair value (based on DG’s P/B compared to the P/B of their peers).
- Price to Equity (P/E): DG stock P/E ratio is currently 19.27, compared to the average P/E ratio of DG’s peers being -104.86. This tells us that DG is healthier than their competition, but does not allow us to obtain a valuation.
Overall, DG stock is overvalued and needs to experience a change in stock price of (an average of) 97.53% to be considered “at fair value”.
Is DG Stock a Buy or Sell?
Overall, due to the overall stock rating of (Based off of DCF, ROE, and P/E), as well as the fact that a comparable analysis (P/E and P/B) found that 5 — Very Strong DG was overvalued and need to experience a price change of 97.53% in order to be at their fair value, I have concluded the following:
I think that DG is definitely undervalued, and seems to be financially healthy. As a result, it would be worth looking into the DG stock for yourself to determine if it is a suitable investment for you.
Originally published at https://utradea.com.
