Analysis of 1-year total return
Dollar General (DG) stock has risen 2.2% in the last one year as of February 29, 2016. Considering that it has provided a dividend of $0.88 over the period, the total return of the stock has been 3.4%. The returns provided by Dollar General (DG) stock has been higher than its closest peer, Dollar Tree (DLTR), which has provided total returns of 0.71%.
If we look at the graph below, we can see that the consumer discretionary sector represented by the Consumer Discretionary Select Sector SPDR ETF (XLY) and the broad market S&P 500 (SPY) has underperformed Dollar General (DG) over the last one year.
Dollar General’s (DG) current PE multiple is 19.3x. That means investors are paying 19.3 times the last four quarter earnings of Dollar General (DG) to acquire the stock at the current price. If the earnings trend is considered correct, then Dollar General should improve its earnings in the next four quarters by around 13%, which brings down its forward PE to 17.16x.
Peers of Dollar General (DG) are trading at much higher multiples. These include Costco (COST) and Dollar Tree (DLTR), which are trading at forward PE (price-to-earnings) multiples of 26.79x and 21.2x, respectively. The industry (XLY) (XRT) average for forward PE is 20.0x.
In the next article, we’ll have a look at the guidance provided by the company for its 4Q15 earnings.