This is probably the best dollar general analysis stock I’ve seen so far. Using this opportunity to dollar cost average down and hold through this rough wave.
My price target was 92 dollars, yours right there with mine. I live off dollar general as a truck driver that spends alot of time in the dakotas and iowa, most rural towns only have a dollar general.
@thecyclicalinvestorsclub6657 iowa is nice state I live in mn but my route runs from waterloo area to Mason City and over to spirit lake hitting all the small towns every week, really enjoy the route and the people... ia people just seem nicer lol
I def think you are spot on. I see the market getting out of these "value" places because it has corrected so much recently, they bought the top and it will bottom out and recover. DG is a company that supports areas that can not support a walmart ect, they are the only "large" store in these towns. Best thing to do right now is place your bet and DRIP until the recovery happens.
I Bought 5,100 shares 8/29 at $86.32, 30 mins before the close. It collapsed on the close, and closed at $84.03. LUCKILY It rallied Friday 8/30, I SOLD Fri AM at $87.18.
I don't understand why you would buy one day and then turn around and sell the next. What new information did you learn during that time which would cause you to change your mind?
@@thecyclicalinvestorsclub6657 Thursday evening I saw a breakdown of the DG customer.. Annual income $40K. WMT $80K Costco $128K. Got spooked also with my Buy. 30 mins before the close, right after I Bought, it further collapsed, after already being down almost 30%. I was glad to get out on the POP Fri AM.
So, a lot has to do with one's time frame (which is often the case). I'm not calling a near-term bottom in the stock price, so if you are trading shorter term, you might be happy you sold. I'm aiming more for the medium-term of 3-5 years, acknowledging that the first year or two are likely to be rocky. One thing I've noticed having done this job for 9 years now, is that a lot of times it's the stock price movement that causes one to change their mind about their investment rather than medium-term potential at a given price.
@@thecyclicalinvestorsclub6657 Agree. I saw you said that in this, or an earlier video. I'm probably going to take a huge PFE position again soon. I had 27K shares, took a 69K loss or so, sold 7/31, on a rally to $31.44. Not too bad tho, collected 3 Divvy checks and got abt $15K or so in some short in/out trades. Now that 31 days have passed, I'm probably going to go in for a 40-50,000 share position. Hoping for a little selloff from here.
I'm still just sitting and holding my PFE position. It's showing a total return of about 16% since last December when I shared my buy video. Pretty solid return so far.
The S&P 500 is up about 49% from November 4th 2022 to today, which is around the peak of DG's performance. During this same period, DG's stock has dropped 66%. How is the decline solely due to their consumer base not being able to spend money in the stores. While the economy and the S&P were thriving before recently, DG's financials reveal a more complex picture. Revenue increased positively from 2020 to 2024, with a 22% rise in 2021 and an 11% increase in 2023 year-over-year. Despite a slight dip in gross profit in 2024, gross profit has grown every year previously. However, operating income decreased by 31% from 2021, and operating expenses rose by 10% year-over-year from 2020, while revenue only grew by about 8% over the same period. How is it that DG doesn’t have any major problems as a company. Additionally, potential changes, such as the Department of Labor raising the minimum salary for employees to be exempt from overtime, could further increase operating expenses and impact income. I just want to figure out what’s increasing their costs, and want to know what else is causing their net income to drop 37% from FY 21 with increasing revenues
Thanks for the comment. Since 2021, revenue is up about the same as inflation around 20%, so it's likely costs of their goods, labor, and transportation have increased even more than that. The will need to make adjustments and figure out how to balance these better, for sure. But, it has been a very tricky time to navigate, so I wouldn't automatically assume the current trend down continues forever.
No way. The cheap get cheaper and this one isn't even cheap. Earnings going down and coming in less than estimates. Also, DG is terrible technically, strong downward momentum.
I like this analysis. Keep in mind DG isn't a "dollar store" like Dollar Tree. It's more of a traditional discount store that has a strong presence in low-income areas.
Totally disagree. Value trap. -$18B net debt. -Executives dump shares as soon as they get them. No buying. -The company bought shares routinely without discretion at ATHs. They destroyed value for years and it’s only beginning to show its face now. -Margins shrinking. -CapEx screaming higher because of vast underinvestment in stores. -Safety issues and dissatisfied employees. -Free cash flow consistently a fraction of earnings-means they are smoothing out earnings. To make matters worse, they brought back the CEO who caused all these problems and fired the new guy, who had nothing to do with this value destruction. Take this from a former shareholder. Average price of $135 and sold before recent earnings after losing confidence in their turnaround. Many, many, many better companies out there.
@@thecyclicalinvestorsclub6657 In DG? I held for about six months and was down about 15% when I bailed. I sold before the last earnings call because I could sense that this was a sinking ship. The upcoming call was a reckoning. I realized I’d lost confidence in their ability to turn it around and was therefore scared of the market reaction. If I’m afraid of short term news for any of my investments I know there’s something wrong with my thesis.
Margins are compressing permanently due to competition and shrinkage. Need to factor that in. Past earnings had higher margins. Value trap at 100. Safe buy zone is below 70
Thanks for the comment. It seems to me though, that if margins can compress, then they could potentially expand as well. Personally, I think they should raise prices more. Most of what they sell is pretty cheap, still.
Humm...sounds tempting but retail is kinda high risk : / margins are quite low, so a small drop in net income and they are already losing money. What is your take in that?
I think the market has quite a bit of that priced into the stock. My thesis would be when the economy improves for their customers a few years down the road, that earnings will recover rather than continue in a straight line down.
@@thecyclicalinvestorsclub6657 thanks and yeah, i agree with you, thus the discount they are in now. Just dont want it to be another WBA xD.. However the premiums on good times and never justified on retail due to the low margins..but that can play in our favor as value investors ;)
@@thecyclicalinvestorsclub6657 Best bet us to wait for the market structure to change and then evaluate if this is something that make sense for your portfolio. With a two year downtrend, we can wait a little longer to see if it has bottomed to start to buy.
Oof. If you can’t see anything fundamentally wrong, you’re not able to see. You’re not capable of valuing businesses. You did not once mention cash flow, which is quite literally the only thing that matters. Looking at the cash flow profile you can quite easily see how challenged this business is. Of the many things I listed, look at cash flow and stock repurchases. Cash flow is in the toilet and they stopped repurchasing when the stock crashed-literally the opposite of what you want to see. You’re not seeing the problems. You’re looking at PE which is irrelevant. Their problems are clear if you’re able to value a business properly. Your strategy of buying beaten down stocks will not work as interest rates continue taking hold on the economy. Stocks that fall usually fall for a reason. The last few years have been investing on easy mode. You’re basically throwing darts at declining stocks without actually looking at the fundamentals.
Cash flow can be volatile, and it's normal for cash flow to be bad when the stock price is falling. That's the main reason the stock price falls. That's why I prefer to use earnings. They aren't as volatile and you get a longer-term view.
You sound pretty arrogant for concepts you think you understand. What is the cash from operations from DG (and what adjustments were made to derive the CFO) and what has it been pre-covid? The free cash flow takes into account growth / maintenance CapEx ... what are they? What is the ROIC of that CapEx and how will it impact future growth? Chris Bloomstran who, mind you, is light years ahead of your analysis ... and he significantly increased his position in DG in Q3/Q4 2023 as it hit 100 ... what do you know that he doesn't?
@@gmoney546 You sound far more arrogant for assuming I don’t understand these things. The answers to your questions all support my theory. Their maintenance CapEx is permanently higher because they have to cope with the fact that they have been vastly understaffing their stores and leaving them incredibly unsafe. The financial penalties will be dwarfed by the investments required simply to abide laws, let alone make them tolerable for workers. This is well known and public information. They also bought back stock at highs and took on massive debt loads to do so and are now being crushed by higher interest expense and unable to buy back at lows. On top of this, they brought back the very CEO that caused all these problems and fired the new guy who likely had little to do with them, having been in the position for little more than one year. Sorry I don’t agree with you. But these are the facts. The best investors make mistakes. But this video does not acknowledge the bear case at all. While I could very well be wrong, your stance is vague and simply asks questions with the arrogant assumption that I don’t understand the business. I was invested in the business for a couple of months and understand it very well.
Majority of that “debt” consists of long term operating leases for their stores … those costs are expensed in operating cost. Long term debt is $6.2B …
I think the debt is a fair issue to raise, and probably the biggest risk to the potential future recovery of the stock. I didn't talk about it in the video, but the 'normal' 10-year CAGR estimate that's in the spreadsheet does account for the debt. If they earn $5.75 per share this year, and then grow an average 8.88% per year after that for 10 years, the 10-year earnings CAGR would be 5.32% (including debt). That's about the same valutation the S&P 500 is at right now, so that's basically what I would say the market is valuing the stock at today's price. So, at today's price, including the debt, it's being valued similarly to other stocks using those assumptions above. I think that if EPS really does come in around $5.75 this year or next, they will likely be able to grow much faster than 8.88% off the bottom, and that's the scenario that will produce above average stock returns. I don't think anyone knows exactly what will happen, but this at least frames things in a way where investors can think about it, and decide if that scenario seems like it has a reasonable chance or not.
You continue to look at earnings, which mean absolutely nothing. Cash flows are in the toilet. If you fail to realize this you will fail in the market.
@@thecyclicalinvestorsclub6657 On that I can’t disagree. I guess we just disagree on cash flow coming back. I think cash flow is leading earnings, and it will only stagnate or get worse.
Thank you. I got 150 shares. I don't mind waiting, it's worth the risk. I think the market overreacted to the earnings and possibly we don't have to wait very long to make profit
Yeah, even if the economy deteriorates over the next year, a lot of that seems to be already priced into the stock, right now. Things could always get worse, of course, but as you note, they could also recover faster than expected.
This is probably the best dollar general analysis stock I’ve seen so far. Using this opportunity to dollar cost average down and hold through this rough wave.
Thanks. Glad you found it useful. Averaging down is probably a good strategy here for the medium term.
My price target was 92 dollars, yours right there with mine. I live off dollar general as a truck driver that spends alot of time in the dakotas and iowa, most rural towns only have a dollar general.
Dollar General and Caseys :) (I live in Iowa)
@thecyclicalinvestorsclub6657 iowa is nice state I live in mn but my route runs from waterloo area to Mason City and over to spirit lake hitting all the small towns every week, really enjoy the route and the people... ia people just seem nicer lol
I def think you are spot on. I see the market getting out of these "value" places because it has corrected so much recently, they bought the top and it will bottom out and recover. DG is a company that supports areas that can not support a walmart ect, they are the only "large" store in these towns. Best thing to do right now is place your bet and DRIP until the recovery happens.
Thanks. It will likely take a few years but the price looks reasonable here.
I Bought 5,100 shares 8/29 at $86.32, 30 mins before the close. It collapsed on the close, and closed at $84.03.
LUCKILY It rallied Friday 8/30, I SOLD Fri AM at $87.18.
I don't understand why you would buy one day and then turn around and sell the next. What new information did you learn during that time which would cause you to change your mind?
@@thecyclicalinvestorsclub6657 Thursday evening I saw a breakdown of the DG customer.. Annual income $40K. WMT $80K Costco $128K. Got spooked also with my Buy. 30 mins before the close, right after I Bought, it further collapsed, after already being down almost 30%. I was glad to get out on the POP Fri AM.
So, a lot has to do with one's time frame (which is often the case). I'm not calling a near-term bottom in the stock price, so if you are trading shorter term, you might be happy you sold. I'm aiming more for the medium-term of 3-5 years, acknowledging that the first year or two are likely to be rocky.
One thing I've noticed having done this job for 9 years now, is that a lot of times it's the stock price movement that causes one to change their mind about their investment rather than medium-term potential at a given price.
@@thecyclicalinvestorsclub6657 Agree. I saw you said that in this, or an earlier video. I'm probably going to
take a huge PFE position again soon. I had 27K shares, took a 69K loss or so, sold 7/31, on a rally to $31.44. Not too bad tho, collected 3 Divvy checks and got abt $15K or so in some short in/out trades. Now that 31 days have passed, I'm probably going to go in for a 40-50,000 share position. Hoping for a little selloff from here.
I'm still just sitting and holding my PFE position. It's showing a total return of about 16% since last December when I shared my buy video. Pretty solid return so far.
Agree, I think you are spot on with the COVID boost from stimulus money.
Thanks. It seems pretty clear now in retrospect.
I think this is a good pick, time will tell.
Yep. We'll see.
Do you fear that they can be removed from the SPY due to poor stock returns?
It's possible, but I don't think they are super close to that, yet.
The S&P 500 is up about 49% from November 4th 2022 to today, which is around the peak of DG's performance. During this same period, DG's stock has dropped 66%. How is the decline solely due to their consumer base not being able to spend money in the stores. While the economy and the S&P were thriving before recently, DG's financials reveal a more complex picture. Revenue increased positively from 2020 to 2024, with a 22% rise in 2021 and an 11% increase in 2023 year-over-year. Despite a slight dip in gross profit in 2024, gross profit has grown every year previously. However, operating income decreased by 31% from 2021, and operating expenses rose by 10% year-over-year from 2020, while revenue only grew by about 8% over the same period. How is it that DG doesn’t have any major problems as a company. Additionally, potential changes, such as the Department of Labor raising the minimum salary for employees to be exempt from overtime, could further increase operating expenses and impact income. I just want to figure out what’s increasing their costs, and want to know what else is causing their net income to
drop 37% from FY 21 with increasing revenues
Thanks for the comment. Since 2021, revenue is up about the same as inflation around 20%, so it's likely costs of their goods, labor, and transportation have increased even more than that. The will need to make adjustments and figure out how to balance these better, for sure. But, it has been a very tricky time to navigate, so I wouldn't automatically assume the current trend down continues forever.
Would you do Atkore pls?
I added it to the list.
No way. The cheap get cheaper and this one isn't even cheap. Earnings going down and coming in less than estimates. Also, DG is terrible technically, strong downward momentum.
Those things are obviously true, but the question is where will they be 3-5 years from now.
Thoughts on DEO?
I have a video on DEO over on Patreon at the $5 per month tier.
I like your hat. Go Clones!
Thanks! Go Clones!
I like this analysis. Keep in mind DG isn't a "dollar store" like Dollar Tree. It's more of a traditional discount store that has a strong presence in low-income areas.
Good point. I have a tendency to lump them together in my mind.
has anything changed for linde plc since your last video?
My recession buy price has risen a little to $212.47.
Totally disagree. Value trap.
-$18B net debt.
-Executives dump shares as soon as they get them. No buying.
-The company bought shares routinely without discretion at ATHs. They destroyed value for years and it’s only beginning to show its face now.
-Margins shrinking.
-CapEx screaming higher because of vast underinvestment in stores.
-Safety issues and dissatisfied employees.
-Free cash flow consistently a fraction of earnings-means they are smoothing out earnings.
To make matters worse, they brought back the CEO who caused all these problems and fired the new guy, who had nothing to do with this value destruction.
Take this from a former shareholder. Average price of $135 and sold before recent earnings after losing confidence in their turnaround. Many, many, many better companies out there.
How did your investment perform?
@@thecyclicalinvestorsclub6657 In DG? I held for about six months and was down about 15% when I bailed. I sold before the last earnings call because I could sense that this was a sinking ship.
The upcoming call was a reckoning. I realized I’d lost confidence in their ability to turn it around and was therefore scared of the market reaction. If I’m afraid of short term news for any of my investments I know there’s something wrong with my thesis.
They have 6 billion in debt
GEV, SOLV, APA?
I added those to the list.
Margins are compressing permanently due to competition and shrinkage. Need to factor that in. Past earnings had higher margins. Value trap at 100. Safe buy zone is below 70
Thanks for the comment. It seems to me though, that if margins can compress, then they could potentially expand as well. Personally, I think they should raise prices more. Most of what they sell is pretty cheap, still.
@@thecyclicalinvestorsclub6657 margins will never expand due to low income shoppers, the stock could even sink to 30 $
Humm...sounds tempting but retail is kinda high risk : / margins are quite low, so a small drop in net income and they are already losing money. What is your take in that?
I am not sure you saw the clip till the end. The answer it is in the clip. 😂
I think the market has quite a bit of that priced into the stock. My thesis would be when the economy improves for their customers a few years down the road, that earnings will recover rather than continue in a straight line down.
@@thecyclicalinvestorsclub6657 thanks and yeah, i agree with you, thus the discount they are in now. Just dont want it to be another WBA xD..
However the premiums on good times and never justified on retail due to the low margins..but that can play in our favor as value investors ;)
@@thecyclicalinvestorsclub6657 Best bet us to wait for the market structure to change and then evaluate if this is something that make sense for your portfolio. With a two year downtrend, we can wait a little longer to see if it has bottomed to start to buy.
Oof. If you can’t see anything fundamentally wrong, you’re not able to see. You’re not capable of valuing businesses. You did not once mention cash flow, which is quite literally the only thing that matters. Looking at the cash flow profile you can quite easily see how challenged this business is.
Of the many things I listed, look at cash flow and stock repurchases. Cash flow is in the toilet and they stopped repurchasing when the stock crashed-literally the opposite of what you want to see.
You’re not seeing the problems. You’re looking at PE which is irrelevant. Their problems are clear if you’re able to value a business properly.
Your strategy of buying beaten down stocks will not work as interest rates continue taking hold on the economy. Stocks that fall usually fall for a reason. The last few years have been investing on easy mode. You’re basically throwing darts at declining stocks without actually looking at the fundamentals.
Cash flow can be volatile, and it's normal for cash flow to be bad when the stock price is falling. That's the main reason the stock price falls. That's why I prefer to use earnings. They aren't as volatile and you get a longer-term view.
You sound pretty arrogant for concepts you think you understand. What is the cash from operations from DG (and what adjustments were made to derive the CFO) and what has it been pre-covid? The free cash flow takes into account growth / maintenance CapEx ... what are they? What is the ROIC of that CapEx and how will it impact future growth? Chris Bloomstran who, mind you, is light years ahead of your analysis ... and he significantly increased his position in DG in Q3/Q4 2023 as it hit 100 ... what do you know that he doesn't?
Cory sounds arrogant? C’mon now
@@highc6866 Brian not Cory
@@gmoney546 You sound far more arrogant for assuming I don’t understand these things.
The answers to your questions all support my theory. Their maintenance CapEx is permanently higher because they have to cope with the fact that they have been vastly understaffing their stores and leaving them incredibly unsafe. The financial penalties will be dwarfed by the investments required simply to abide laws, let alone make them tolerable for workers. This is well known and public information.
They also bought back stock at highs and took on massive debt loads to do so and are now being crushed by higher interest expense and unable to buy back at lows.
On top of this, they brought back the very CEO that caused all these problems and fired the new guy who likely had little to do with them, having been in the position for little more than one year.
Sorry I don’t agree with you. But these are the facts. The best investors make mistakes. But this video does not acknowledge the bear case at all. While I could very well be wrong, your stance is vague and simply asks questions with the arrogant assumption that I don’t understand the business. I was invested in the business for a couple of months and understand it very well.
18 billions in debt; a real valuetrap imo
Majority of that “debt” consists of long term operating leases for their stores … those costs are expensed in operating cost.
Long term debt is $6.2B …
I think the debt is a fair issue to raise, and probably the biggest risk to the potential future recovery of the stock. I didn't talk about it in the video, but the 'normal' 10-year CAGR estimate that's in the spreadsheet does account for the debt. If they earn $5.75 per share this year, and then grow an average 8.88% per year after that for 10 years, the 10-year earnings CAGR would be 5.32% (including debt). That's about the same valutation the S&P 500 is at right now, so that's basically what I would say the market is valuing the stock at today's price. So, at today's price, including the debt, it's being valued similarly to other stocks using those assumptions above.
I think that if EPS really does come in around $5.75 this year or next, they will likely be able to grow much faster than 8.88% off the bottom, and that's the scenario that will produce above average stock returns. I don't think anyone knows exactly what will happen, but this at least frames things in a way where investors can think about it, and decide if that scenario seems like it has a reasonable chance or not.
You continue to look at earnings, which mean absolutely nothing. Cash flows are in the toilet.
If you fail to realize this you will fail in the market.
It's not what cash flow is today, it's what it is 3-5 years from now.
@@thecyclicalinvestorsclub6657 On that I can’t disagree. I guess we just disagree on cash flow coming back. I think cash flow is leading earnings, and it will only stagnate or get worse.
Seems like it took on a lot of additional debt last year when the stock started falling. I think that's what started all of this
Perhaps, but Dollartree has fallen more than -50% of its highs as well.
Thank you. I got 150 shares. I don't mind waiting, it's worth the risk. I think the market overreacted to the earnings and possibly we don't have to wait very long to make profit
Yeah, even if the economy deteriorates over the next year, a lot of that seems to be already priced into the stock, right now. Things could always get worse, of course, but as you note, they could also recover faster than expected.
Good pick
Let's hope.
Take a look at Monster Beverage MNST and Factset Research system FDS
I have added those to my list.