Dollar General stock price has suffered a major implosion in the past two years, making it one of the worst-performing companies in Wall Street. GD has crashed by almost 70% from its highest time in 2022, lowering its market cap from over $62 billion to about $17 billion.
Rotation to Walmart
Dollar General is not the only retail stock that has imploded in the past two years. Dollar Tree has also crashed by 59% in the same period, while Five Below has dropped by 62%.
A likely reason for this is that many consumers have rotated from bargain stores to Walmart, a company whose market cap is on a path to $1 trillion. Walmart is often seen as a better alternative to dollar stores because it offers a wider variety of products. It also has the Walmart+ service that has accumulated over 30 million customers.
Dollar General is also facing substantial competition from other retail companies like Amazon, which has over 200 million Plus subscribers. These users prefer buying on Amazon and Walmart because their subscriptions guarantee them free delivery.
Dollar General’s top-line growth has been fairly steady, signaling that the company is seeing strong demand from customers. Its annual revenue has jumped from $27.7 billion in 2019 to over $38 billion in the last financial year.
The challenge, however, has been on the bottom line, as the net profit has dropped from $1.7 billion to $1.45 billion in the same period. This trend happened as the cost of labor and overall inflation jumped in the United States.
Read more: Why are Dollar Tree and Dollar General stocks falling apart?
Dollar General earnings ahead
The next important catalyst for the DG stock price will be its upcoming earnings, which will provide more information about its business.
The most recent results showed that Dollar General’s net sales rose by 4.2% in the last quarter to $10.2 billion. Same-store sales rose by 0.5% during the quarter.
However, the profitability challenges that have existed in the past few quarters remained. Its operating profit dropped by 20.6% to $550 million, while the diluted earnings per share fell to $1.70.
The company attributed its overall weakness to weak consumer spending and elevated costs. However, it has also made progress, such as reducing its inventories to about $7 billion from $7.5 billion a year earlier.
Analysts believe that Dollar General’s revenue rose by 4.5% in the last quarter to $10.14 billion. The higher estimate of its revenue was $10.14 billion, while the lower side was $10.05 billion.
The annual revenue estimate for the year is expected to be $40.5 billion, a 4.7% from the last financial year. It is then expected to hit $42.4 billion in 2026. These estimates are evidence that the company is doing modestly well in terms of demand.
The ongoing challenges, while bad, could be a positive catalyst for the company as it allows it to address its cost structure.
Dollar General’s valuation has also become reasonable in anticipation of its recovery. It has a price-to-earnings ratio of 13.28, lower than the consumer staples median of 17.
Read more: Dollar General’s earnings reveal vulnerability among low-income consumers
Dollar General stock price analysis
DG chart by TradingView
The weekly chart shows that the DG share price has been in a strong bearish trend in the past few years. It recently crashed below the key support at $99.95, its lowest point in October last year.
Dollar General stock has crashed below the 50-week and 200-week Exponential Moving Averages (EMA). The Relative Strength Index (RSI) and the MACD indicators have continued falling.
Therefore, the stock could bounce back, and possibly retest the key resistance at $99.95. That implies a 28% jump, and could happen when it publishes its earnings this week.
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