Is Dollar General a Buy after the Dip...
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Jun
4
Jonathan Yates
Is Dollar General a Buy after the Dip?
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As mid-market retailers such as Sears Holding (NASDAQ: SHLD) and J.C. Penney (NYSE: JCP) plunge in value , Dollar General (NYSE: DG), a discount variety store chain, soared until recently, when it dipped due to a bearish report that disappointed Wall Street.

Up more than 20% for 2013, Dollar General is down about 8% in today’s trading.  But, as the chart below shows, Dollar General has outperformed both Sears Holding and J.C. Penney.  The high level of institutional ownership indicates that hedge funds, private equity groups and others expect this to continue.

 

Dollar General has a very high level of institutional ownership at 97.90%.

There is much on the income statement, balance sheet, and capital structure to justify that level of investing by hedge funds, private equity groups, and others.  The projected levels of sales and earnings growth by the analyst community is in double digits. The forward price-to-earnings ratio is estimated to fall to under 15 from almost 19, at the present.

The company is also better positioned than J.C. Penney or Sears Holding to profit from the evolving retail sector in the United States.  J.C. Penney and Sears Holding are losing customers to the Internet and discount variety stores like Dollar General.  While Dollar General does not have the range of merchandise of a Sears or J.C. Penney, it has grocery products to lure in more customers.  Once in the store, consumers impulse many other products, ranging from greeting cards to school supplies

What should be most enticing to buyers about the present fall off for Dollar General is that it is an extremely low beta stock.  While the beta for the stock market as a whole is 1, for Dollar General it is just 0.12.  There is a small short of just 1.93%.

By contrast, Sears Holding has a short float of 9.96%.  The short float for J.C. Penney is 18.92%.  A short float of 5% is considered to be troubling for a company.

As the chart below shows, it has been a very strong year for Dollar General.

The candlestick patterns certainly evince a very heavy sell off.  For those looking for a value play, Dollar General could be a discount stock to buy.

 



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