Is Dollar General Cheap Enough To Buy After Profits Jump 54.4% In 2020?
Back in August 2020 I wrote and showed you 3 Reasons To Buy Dollar General – And 1 Not To…
Today, I give an update after it released its latest quarterly earnings and answer – Is Dollar General Cheap Enough To Buy After Profits Jump 54.4% In 2020?
You can read the full article above.
But if you don’t want to; here’s a quick recap of why I said to avoid it previously…
Dollar General Is Not Cheap
This is the 1 reason to avoid Dollar General stock for the time being…
With the markets at or near all-time highs you’d expect a fantastic stock like Dollar General to be selling at a big valuation.
And it is.
As of this writing its P/E is 25.7.
Its P/CF is 15.
And its forward P/E is 23.8.
On all three metrics I look to buy investments below 20 to consider them undervalued.
This shows that Dollar General is currently overvalued… By a small margin.
And in investing terms this means Dollar General stock does not offer you a margin of safety in investing terminology.
When you invest in stocks that are undervalued and have a margin of safety it makes the investment safer. And it also means you should expect to earn higher returns owning its stock in the coming years.
The inverse of this is also true…
When you invest in a stock that is overvalued and without a margin of safety it makes the investment riskier. And it also means you should expect to earn less owning its stock going forward.
With Dollar General being overvalued it lowers the margin of safety and makes investing in its stock riskier right now.… And it also lowers the investment returns you should expect to own going forward too.
This thesis to avoid investing in Dollar General due to its high valuation continued to play out after it released its most up to date quarterly earnings on March 18th 2020… Sort of.
- Fourth quarter 2020 sales rose 17.6% to $8.415 billion.
- Full year 2020 sales rose 21.6% to $33.747 billion.
Which led to gigantic increases in operating profits…
- Fourth quarter 2020 operating profit rose 21% to $872.2 million.
- While full year 2020 operating profit rose 54.4% to $3.6 billion.
These results were so great that Dollar General announced an 16.7% increase to its quarterly dividend to $0.42 per share beginning in April.
Surprisingly, its shares are down 5% since I last told you to avoid its stock though.
So, with its profits rising a lot and its shares falling is it now cheap enough to buy? It is.
Its P/E is now 18.3.
Its P/CF is 12.5.
And its Forward P/E is 20.4.
Combined, these show that DG is now cheap enough to buy.
It’s still insanely profitable. It still has its competitive advantages. It still pays a large – and growing dividend. And its now cheap enough to buy.
These things combine to give a large margin of safety to buying DG stock right now. And for this reason – and the ones in the previous article – I now recommend you buy DG stock in your retirement portfolio.
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Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.