We came across a bullish thesis on Dollar General Corporation (DG) on Substack by Christopher Kirincic. In this article, we will summarize the bulls’ thesis on DG. Dollar General Corporation (DG)’s share was trading at $68.44 as of Jan 17th. DG’s trailing and forward P/E were 11.29 and 10.96 respectively according to Yahoo Finance.
Dollar General (DG) is an interesting company with strong growth projections, with expected increases of 7% in cash flow and 11% in earnings annually over the coming years. The company’s conservative estimate for earnings per share (EPS) in 2025 is $8.65, which aligns well with Dollar General’s track record of consistently exceeding expectations, including a peak EPS of $10.68 in 2022. Dollar General has demonstrated a robust and stable earnings base, with only one non-recurring loss in its history, positioning the company well for continued growth.
Dollar General’s valuation is particularly compelling, supported by a three-pronged approach—Dividend Yield Reversion, P/E Reversion, and EV/EBITDA. Using a 19x multiple on the 2025 EPS estimate of $6.06 results in a price target of $115, representing a 68% upside from the current stock price. A more conservative 17x multiple leads to a $103 price target for 2025. Over the past few years, the company’s stock has traded between $168 and $262 on lower EPS, highlighting the company’s capacity to command a much higher valuation than its current price. Additionally, Dollar General’s dividend yield, currently at 3.4%, is substantially higher than its historical average of around 1.1%. Reverting to this historical average would imply a price target of $219, offering a 320% upside, while a partial yield reversion would suggest a 53% increase, with a target price of $105.
The EV/EBITDA approach further supports a positive outlook, with an estimated enterprise value of $26.8 billion, leading to a per-share value of $96. Combining these three valuation methods, Dollar General’s price target for 2025 is projected at $101, indicating a 47% upside. Despite challenges such as rising interest rates impacting its core customer base of lower-income consumers, Dollar General remains highly profitable, and its operational metrics remain strong. Over the past decade, the company has nearly tripled its sales, doubled cash flow, and increased EPS by 53%, indicating solid long-term growth potential. Despite these gains, the stock has increased only modestly, creating a unique opportunity to invest in a fundamentally sound company at an attractive valuation, with the potential for significant upside by 2029.
Dollar General Corporation (DG) is not on our list of the 30 Most Popular Stocks Among Hedge Funds. As per our database, 45 hedge fund portfolios held DG at the end of the third quarter which was 42 in the previous quarter. While we acknowledge the risk and potential of DG as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DG but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.