Dollar General Corp. (DG), Dollar Tree, Inc. (DLTR): Why Bigger Is Not Always Better

Similar to Dollar General, Family Dollar Stores, Inc. (NYSE:FDO) is also counting on tobacco products to improve sales, and consequently, lower margins can be expected from this company as well. Thus, if you’re avoiding Dollar General, there are some great reasons why Family Dollar Stores, Inc. (NYSE:FDO) should be avoided as well, even though it had dropped more than 2% after Dollar General had released its results.

Small and happy

Thus, even the second-largest player in the sector doesn’t cut it, and this brings us to Dollar Tree, Inc. (NASDAQ:DLTR), the smallest of the lot with around 4,700 stores. Despite being the smallest, Dollar Tree, Inc. (NASDAQ:DLTR) has been the best performer of the lot, appreciating close to 23% this year. The company’s methodical growth strategy and solid execution make it the best pick among dollar stores.

The most important driver behind Dollar Tree’s success is its keen focus on offering $1 merchandise and strategic product assortment. The company has been expanding smartly, focusing on store productivity along with expanding its coverage. In addition, its e-commerce platform, Dollar Tree, Inc. (NASDAQ:DLTR) Direct, has been growing at a fast clip and witnessed a 23% improvement in traffic in the previous quarter.

Being the smallest of the lot, Dollar Tree, Inc. (NASDAQ:DLTR) has a lot of room to grow and is doing so quite strategically, and has avoided selling tobacco like its peers in order to keep its margin in good health. Thus, if there is a stock which seems worth buying among the three, it has to be Dollar Tree, Inc. (NASDAQ:DLTR).

The bottom line

It’s evident that bigger is always not better. While Dollar General might have performed well so far this year, I think it would make sense for investors to hit the eject button as Dollar Tree, Inc. (NASDAQ:DLTR) looks the superior option. And, the less said about Family Dollar Stores, Inc. (NYSE:FDO) the better. Dollar Tree’s solid execution and its share repurchases should continue to be tailwinds going forward and continue to push the stock higher.

Harsh Chauhan has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Harsh is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

The article Why Bigger Is Not Always Better originally appeared on Fool.com is written by Harsh Chauhan.

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