Dollar General (DG) is a leading discount store company with over 20,000 locations in the United States. It has also started its global expansion to Mexico, where it hopes to become a major disruptor in the retail industry.
It competes with other discount store companies like Dollar Tree, the parent company of Family Dollar, and Five Below.
Dollar General has a market cap of over $18 billion, making it one of the biggest retailers in the US. Its annual revenue has jumped from over $27 billion in 2019 to over $39 billion in the trailing twelve months.
In most cases, dollar stores do well in times of low inflation and when the economy is not doing well. Recently, however, inflation has remained stubbornly high while wage growth has continued accelerating.
As a result, Dollar Tree and Dollar General are among the worst-performing companies in the S&P 500 index this year after falling by 50% and 37%, respectively.
Dollar General stock was trading at $85.75 while its negative hype index stood at 138%.
Negative hype
Dollar General has attracted negative hype because of its weak stock performance. It dropped to a low of $80, its lowest level since June 2018, and by 66% from its highest level in 2023. This drop has erased over $40 billion in market value.
Its stock also formed a death cross pattern in September last year, pointing to more downside. This pattern forms when the 200 and 50 moving averages cross each other.
The company has struggled as inflation has remained stubbornly high this year, which has affected its profitability. Unlike other retailers, Dollar General is often unable to adjust its pricing since it sells most of its items for a dollar.
Dollar General published weak financial results and forward guidance. Its second-quarter revenue rose by 4.2% while its same-store-sales rose by 0.5% during the quarter.
Most importantly, the company’s operating profit dropped by 20.2% to $550 million and it reduced its forward guidance. It expects its annual same-store sales to be between 1% and 1.6%, down from the previous 2% and 2.7%.
There are also hints that the company may slash its dividends to preserve cash. For example, the management did not repurchase stock in the second quarter and has $1.4 billion in its authorization.
The company is in an industry that is struggling as consumer spending remains weak. Economists expect the upcoming retail sales data to show that they dropped by 0.2% in August.
Positive hype
The recent stock crash has made it relatively cheap compared to the industry and its track record. Its P/E ratio has moved to 14.4, lower than the sector median of 20.30 and its five-year average of 20.27.
Dollar General could benefit from the upcoming Federal Reserve interest rate cuts since they will likely lead to more consumer spending in the country.
Fears of a dividend cut are not real since the company has a strong balance sheet and a dividend payout ratio of 36.65%.
Analysts are still bullish on the stock, with an average target of $102, much higher than the current $85.75. They also expect that its revenue will continue rising, reaching $40.5 billion this year and $42.52 billion in 2025.
It has a large market share in the US, meaning that it will continue doing well over time.
Summary of Dollar General stock
The weekly chart shows that the Dollar General stock peaked at $254 in 2023 as it benefited from more demand as the economy weakened. It has now formed a death cross pattern, a high-risk sign while negative hype has continued rising.
The stock has also dropped below the key support level at $99.51, its lowest swing in October last year. It also remains below the Ichimoku cloud.
Therefore, the outlook for the stock is bearish, with the next reference point to watch beng at $61.35, its lowest swing in June 2017. In the future, however, the stock will likely bounce back as investors buy the dip.
If you’d like to receive more trending stocks straight to your inbox, check out our premium plans. Alternatively, if you’d like to hear more about the services offered by HypeIndex, you can check out our FAQ page.
HypeIndex is an AI platform that detects Hype in stocks and cryptos before it moves the market, providing reliable early detection for profitable investment opportunities.
The algorithm for our proprietary HypeIndex score is based on sentiment analysis, data science and machine learning.
Comments