3 Reasons to Buy Dollar General Stock Like There's No Tomorrow

As the market ebbs and flows, opportunities arise that savvy investors can capitalize on. Currently, Dollar General (NYSE: DG) presents such an opportunity. Despite facing significant challenges in 2024, including a 44% decline in stock price while the S&P 500 soared by 23%, Dollar General’s fundamentals suggest that it is ripe for recovery. Here are three compelling reasons to consider buying Dollar General stock now.

1. The Stock Looks Like a Bargain

At its current price of $71.06, Dollar General stock trades at a price-to-earnings (P/E) ratio of just 12. This valuation starkly contrasts with the S&P 500's average P/E ratio of 28, as well as the much higher valuations of competitors like Walmart at 40 and Costco at 56. Such a low P/E ratio implies that the market is pricing Dollar General as a no-growth company in secular decline. However, this perception does not align with the company’s long-standing competitive advantages and market position.

Dollar General operates over 20,000 small-footprint stores, strategically located within five miles of 75% of the U.S. population. This unparalleled convenience offers a significant edge over other retailers and creates formidable barriers to entry for potential competitors. While the company has faced headwinds from weak consumer spending, inflation, and increased competition, its historical performance and resilience suggest that the stock is undervalued at its current price. Investors should take note: buying into Dollar General now could yield considerable returns as the company navigates through its challenges.

2. The Turnaround Plan Is Promising

Recognizing the need for a strategic pivot, Dollar General has unveiled its "Back to Basics" plan, a comprehensive initiative designed to address the operational missteps that have plagued the company. This plan encompasses several key strategies aimed at enhancing profitability and improving customer experience.

One of the primary focuses of this turnaround is better inventory management and improved in-stock levels. By eliminating 1,000 stock-keeping units (SKUs), Dollar General aims to streamline operations, reduce labor costs, and enhance efficiency. Additionally, the company is prioritizing staffing at checkout areas to ensure a smooth shopping experience for customers.

While the company's profit margins have faced pressure, there are signs of recovery. In its most recent quarter, Dollar General reported a same-store sales growth of 1.3%, indicating that underlying demand remains strong. Furthermore, the company is exploring innovative avenues for growth, such as a pilot program for same-day delivery through its app, as well as expanding its existing partnership with DoorDash for delivery services.

As inflationary pressures begin to ease, the macroeconomic environment may become more favorable for Dollar General. The combination of a strategic turnaround plan and improving economic conditions could pave the way for a robust recovery in profits.

3. Growth Potential Remains Strong

Unlike many of its retail peers, Dollar General continues to pursue aggressive expansion plans. While some retailers have halted store openings, Dollar General is targeting the opening of 730 new stores in fiscal 2024, along with the remodeling of 1,620 existing locations. The company is also looking to expand its footprint internationally, with plans to open up to 15 new stores in Mexico.

This ambitious growth strategy is indicative of Dollar General’s confidence in its business model and market demand. By increasing its store count and remodeling existing locations, the company is poised to drive revenue growth while maintaining its competitive edge in the discount retail sector.

Moreover, the low bar set by last year's performance means that even modest improvements in profitability could lead to significant stock price appreciation. Should Dollar General manage to return to profit growth, investor confidence is likely to rebound, potentially doubling the stock's value as it recoups last year’s losses.

Conclusion

In summary, Dollar General represents a compelling investment opportunity for those willing to look beyond its recent challenges. With a stock price that appears undervalued, a promising turnaround plan in place, and significant growth potential through ongoing expansion, Dollar General is well-positioned to recover and thrive in the coming years. As the market continues to evolve, this discount retailer may well be a stock worth buying like there's no tomorrow.

Investors should consider adding Dollar General to their portfolios, especially in a market that is increasingly favoring resilient companies with strong fundamentals. The combination of a strategic turnaround, competitive advantages, and growth potential makes Dollar General a stock that could deliver substantial returns for those who act decisively.