Dollar General Corporation

Comprehensive Analysis of DG Stock

Technical Perspective DG's technical picture shows impressive momentum with substantial gains, particularly over three months. While trading near its 52-week high suggests the stock may be extended, the low beta indicates this strength has occurred with below-market volatility. The modest maximum drawdown provides some comfort regarding downside protection during its advance.

Fundamental Assessment Fundamentally, DG presents mixed signals with concerning margin compression in the latest quarter despite solid revenue levels. The company maintains moderate leverage but faces liquidity constraints that could limit short-term flexibility. Operational efficiency appears adequate though not exceptional, with inventory management representing an area for potential improvement.

Valuation & Risk Profile Valuation metrics present an inconsistent picture, with the forward P/E suggesting reasonable pricing if projected earnings materialize. The stock demonstrates low volatility risk with its defensive beta characteristics and minimal short interest, indicating market confidence in its stability. However, the negative PEG ratio warrants caution regarding growth expectations.

Investment Recommendation DG appears reasonably positioned for investors seeking a defensive holding with historical price strength. While current valuation seems fair based on forward earnings projections, the deteriorating profitability metrics and extended technical position suggest waiting for a better entry point. Investors should monitor upcoming earnings for confirmation that margin pressures are temporary rather than structural. Consider initiating a small position on any meaningful pullback from current levels.

*Note: This analysis is for reference only and not investment advice.*

RockFlow Model Forecast: Three Scenarios for 2026

Based on a comprehensive review, here is the 12-month outlook for Dollar General (DG):

Catalysts: The primary catalyst will be the company's ability to execute a turnaround and demonstrate that recent margin compression is temporary. Success in improving inventory management and stabilizing profitability in upcoming quarterly earnings reports could restore investor confidence and drive the stock higher.

Risks: The key risk is that margin pressures and liquidity constraints persist or worsen, revealing structural challenges rather than cyclical issues. Trading near 52-week highs also poses a technical risk, making the stock vulnerable to a pullback if results disappoint, despite its historically low volatility.

Outlook: While DG's defensive profile and reasonable forward P/E offer some support, the negative PEG ratio and profit concerns warrant caution. A more attractive entry point may materialize on a market-driven pullback. The 12-month price action will likely be range-bound, with a potential trading range of approximately $130 to $165, heavily dependent on earnings performance and macroeconomic conditions affecting its core consumer base.

Wall Street Consensus

Most Wall Street analysts are optimistic about Dollar General Corporation's 12-month outlook, with consensus target around $151.79, indicating expected upside potential.

Overall, DG has investment potential but also faces challenges. Here are key factors to weigh before investing.

DG has demonstrated exceptionally strong long-term performance with substantial gains over recent months.

The stock has delivered impressive short-term returns, gaining 45.71% over three months while significantly outperforming the market by 45.34%, though its 1-month gain of 2.08% suggests recent momentum moderation. DG's low beta of 0.255 indicates this strong performance has occurred with below-market volatility.

Currently trading at $151.84, near its 52-week high of $155, the stock appears to be in an extended position after its substantial rally. The modest maximum drawdown of -17.52% over the past year suggests relatively contained declines during this advance, though the proximity to recent highs warrants monitoring for potential resistance.

Revenue & Profitability DG's Q3 revenue declined slightly to $10.65 billion from Q2's $10.73 billion, while profitability weakened significantly. Gross profit margin fell from 31.3% to 29.9%, and net profit margin dropped to 2.7% from 3.8%, indicating margin compression in the quarter. Operating income ratio nearly halved to 4.0% from 5.6% in the previous quarter.

Financial Health The company maintains moderate leverage with a debt ratio of 52% and interest coverage of 7.6x. However, liquidity appears constrained with a quick ratio of 0.24 and cash ratio of 0.17, suggesting limited short-term flexibility. Operating cash flow to sales ratio of 9.4% indicates adequate but not strong cash generation relative to revenue.

Operational Efficiency DG's operational metrics show mixed efficiency with return on equity at 3.5% and asset turnover of 0.34, indicating modest capital utilization. Inventory turnover remains low at 1.1x, contributing to an 81-day inventory outstanding period. The 29-day cash conversion cycle demonstrates reasonable working capital management despite inventory challenges.

DG exhibits a mixed valuation picture based on its TTM and Forward PE ratios. The current PE of 25.8 is moderately high for a traditional retailer, suggesting some premium. However, the significantly lower Forward PE of 19.2 indicates strong projected earnings growth that could justify the current multiple, leaning toward a reasonably valued to slightly undervalued position if future earnings materialize as expected.

Peer comparison using industry averages is not feasible with the provided data. The negative PEG ratio, which typically signals poor growth prospects relative to valuation, contrasts sharply with the positive implication of the lower forward PE. This inconsistency in metrics suggests a need for more detailed industry context or verification of the underlying data to form a conclusive relative valuation assessment.

Based on the provided metrics, DG exhibits low volatility risk. The Beta of 0.255 indicates the stock is significantly less volatile than the broader market, typically behaving as a defensive holding. The one-year maximum drawdown of -17.52%, while a notable decline, is relatively moderate for an individual stock and aligns with its low-beta profile.

Regarding other risks, the notable lack of any reported short interest suggests the market has minimal speculative pressure betting on a price decline. This could indicate broad market confidence in the company's stability, though it is not a standalone indicator of safety. Other potential risks, such as sector-specific challenges or company fundamentals, would require further analysis as they are not captured by these specific metrics.