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Stocks A to Z / Stocks B / Berkshire Hathaway (BRK.A) ❤
No. of Recommendations: 16
Revisiting this old, tempting idea.
It's fascinating how similar the financial stats of these 2 companies are, coincidentally.
DG 220.7m implied shares outstanding , share price $69.50, market cap $15.3b, TTM sales $40.2b, net income TTM $1.33b, so P/E=15.3/1.33 = 11.5
DLTR 220.3m implied shares outstanding, share price $69.00, market cap $15.2b, TTM sales $31.2b, net income temporarily (?) negative from the FD write-down, but same ballpark in recent years.
And both are down almost exactly 50% since a year ago (actually 49%, so close on the chart I can't tell which is which.) They are both at prices almost identical to their share price 10 years ago. At least DG pays a (small) dividend, and also buys back its own shares, but obviously the buybacks have been at far higher prices than the current share price.
Probably the best time to buy is when know-nothing investors like me are looking at the price chart and shaking their heads in dismay, but I can't get up the courage to go contrarian on this one. I can't help thinking these two are like the stuff they sell: cheap for a reason.
No. of Recommendations: 4
I’ve said enough on this one, so just replying to note I increased my position on Friday ($68 and change).
I read the heyday of 2020-2023 as an aberration. Margins and profits are down from 2019, and I don’t expect margins to fully recover to their 2019 mark.
I think they eventually fix what can be fixed and some of the cyclical issues (hot labor market, cash strapped sub 40k consumers) normalize. Operating margins returning to something like 6-6.5% percent will make it a profitable decision (8.3% in 2019 if memory serves). But they’re in a tight spot, no doubt.
No. of Recommendations: 7
I increased my position on Friday ($68 and change).
I read the heyday of 2020-2023 as an aberration. Margins and profits are down from 2019, and I don’t expect margins to fully recover to their 2019 mark.
I think they eventually fix what can be fixed and some of the cyclical issues (hot labor market, cash strapped sub 40k consumers) normalize. Operating margins returning to something like 6-6.5% percent will make it a profitable decision (8.3% in 2019 if memory serves). But they’re in a tight spot, no doubt.Off to a good start, up $3 today!
Ignoring 2020-2023 is probably a good idea.
DG rev op inc op marg end price. dil sh o/s. mkt cap multiple
2015 20369 1940 9.5% $75.06 294,330 22.1 11.4
2016 21987 2063 9.4% $73.82 281,317 20.8 10.1
2017 23471 2008 8.6%. $103.12 273,362 28.2 14.0
2018 25625 2116 8.3%. $115.43 266,105 30.7 14.5
2019 20754 2302 11.1% $156.99 258,053 40.5 17.6
avg 9.4% 13.5
...
Last 12m 40166 2000 5.0% $80.04 219,997 17.6 8.8
if 7% marg now 40166 2811.62 7.0% $112.52 219,997 24.8 8.8
if 7% AND 13 multiple 2811.62 7.0% $166.14 219,997 36.6 13.0
In other words, if we got to operating margins of 7% (almost halfway back to average 2015-2019 margins, which were 13.5), then the share price might go to $112.52, up 57% from today's price ($71.71 as I write this). If we got those operating margins AND we got back to a 13 multiple of operating earnings (almost as high as 13.5, the average multiple from 2015-2019), then the share price could be up 132% from today's price.
This is probably slightly optimistic, not only because the headwinds they have right now are not necessarily temporary, but also because their product mix favours consumables a bit more now, even though your point that the product has not changed dramatically is also correct. But it would suggest that today's price gives you some compensation if those optimistic assumptions do work out.
DTB
No. of Recommendations: 6
In other words, if we got to operating margins of 7% (almost halfway back to average 2015-2019 margins, which were 13.5), ...
Correction: the data in the table is right, I think, but the above should have read "if we got to operating margins of 7% (almost halfway back to average 2015-2019 margins, which were 9.4%, ...)..." It is the market cap as a multiple of operating earnings that averaged 13.5 from 2015-2019, not the operating earnings margin. The operating earnings margin in the most recent twelve months was 5.0%, so 7.0% would be almost halfway back to 9.4%. Sorry for the slip.
dtb
No. of Recommendations: 4
In other words, if we got to operating margins of 7% (almost halfway back to average 2015-2019 margins, which were 13.5), then the share price might go to $112.52, up 57% from today's price ($71.71 as I write this). If we got those operating margins AND we got back to a 13 multiple of operating earnings (almost as high as 13.5, the average multiple from 2015-2019), then the share price could be up 132% from today's price.
The second scenario is my working investment thesis (and why I am a shareholder); roughly looking at $150 - $160 for the share price using a 15x multiple.
tecmo
...
No. of Recommendations: 7
There is definitely a lot more fear around dollar stores, than beaten down stocks in other sectors.
For DG, selling an ATM Jan 16, 2026 put can earn you an annualized ROI of almost 20% or get you an entry price of $59 or 17% below current price.
In comparison, with Devon Energy, you can earn 15% for an entry point 11% below current market.
With Comcast, you can earn 11.5% for an entry 9.5% below current market.
With Hershey you can earn 9.6% for an entry 9.3% below current market.
There is much more fear regarding the prospect of DG returning to past glory. Current holders are willing to pay very large premiums for protection from downside. Maybe writing puts is a good strategy for DG.
Jim is very experienced in options. Maybe he can chime in.
No. of Recommendations: 3
The analyst Christopher Kirincic discusses his valuation of DG
Dollar General's stock is significantly undervalued, trading at 11x projected 2025 earnings, presenting a prime buying opportunity with a conservative price target of $101.
Implementing a covered straddle projects a potential 213% return over two years, with a breakeven point 12% below today's valuation.
https://seekingalpha.com/article/4751118-dollar-ge...What do you think of the valuation as well as the covered straddle thst he has suggested.
No. of Recommendations: 2
If you were able to outline, at least in general, his covered straddle w/o violating copyright it would be helpful.
In general, a 'covered straddle' is: holding stock, selling an ATM call, selling an ATM put
https://www.investopedia.com/terms/c/covered-strad....
The "holding stock, selling a call" part is OK, it's a covered call
Selling an additional option, i.e. a put, to get more premium is potentially problematic.
It's a 'naked put' unless you sequester cash to pay for the put in case you get assigned when/if the share price drops.
Maybe he accounted for that, assuming something around 4% in T-bills securing the put, but the article is behind a paywall.
If one wanted to try bullish option strategies on this underlying, then buying a DITM call is a strategy that has been discussed a lot on these boards.
No. of Recommendations: 6
I do not subscribe to SA. Just registering allows me to read most articles.
Purchase 100 shares of Dollar General at $68.44
Sell to Open 1 $90 Call dated January ’27 @ $9.83
Sell to Open 1 $90 Put dated January ’27 @ $28.35
Net Cash Outlay Per Share Today = $30.27
There are only 2 outcomes in this scenario:
Best-Case Scenario (If the stock closes at $90 or higher, +32% of today’s quote)
The calls will be exercised
You'll sell your original 100 shares for $9,000
You'll likely collect $472 in dividends
The puts will expire worthless
Final Position = No Shares & $9,000
Cash on Cash Net Profit = $6,446 ($9,000 - $3,027 + 472)
Total Return 213%
Annualized Return over 726 Days = 107%
Worst-Case Scenario (If the stock closes below the $90 strike)
The calls expire worthless
You keep the original 100 shares
You'll likely collect $472 in dividends
The puts will be exercised
You'll buy another 100 shares
You will need an additional $9,000 of cash
Final Position = 200 shares
Start-to-Finish Net Cash Outlay = -$12,026.50
Average Cost = $60.13 ($12,026.50/200) $60.13
Share price may fall 12% to reach the breakeven
A partial reversion to the $101 price target will turn a 32% share price increase into a 213% return. In the event shares do not meet the strike, the position can be liquidated for a positive return at any level above $60.13 or 12% below today’s quote. Owning shares at $60.13 would have been a positive position every single day since 2015 when Dollar General was generating $3.95/share in earnings.
No. of Recommendations: 1
Thanks, very clear!
Agreed, if one is happy with both possible outcomes then this could be a good investment:
(1) collecting premium and shares called away
(2) collecting premium and shares put to you
You will need an additional $9,000 of cash
One could put this into treasuries at around 4% interest when initiating the position.
This $9,000 set-aside (to make the sold put a 'cash secured sold put' to avoid any possibility of an awkward margin call) affects the calculation for return on investment.
