Checking In With the Other Discount Retailer Stock

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Dollar General reports earnings on December 2

Earlier this week, we profiled discount retailer Dollar Tree (DLTR) amid the company’s Mantle Ridge news. Not to be undone, sector peer Dollar General Corporation (NYSE:DG) is in focus now with the company’s third-quarter earnings report less than two weeks away.

Dollar General stock is up 6.5% year-to-date, having distanced itself from the year-to-date breakeven level in the last month thanks to a 4.4% October gain. Despite the lackluster price action, 14 of 18 analysts in coverage maintain “buy” or better ratings on DG, with only one “sell” on the books.

Zeroing in on DG’s fundamentals, Dollar General has grown revenues 43% and increased its net income 65% since fiscal 2017. They also offer a forward dividend of $1.68 with a dividend yield of 0.76%. However, Dollar General stock is trading at a relatively high price-earnings ratio of 21.3. DG also has a forward price-earnings ratio of 20.16, reflecting limited growth expectations on the earnings front.

The retail company also sports a weak balance sheet with $314 million in cash and $14 billion in total debt, indicating a higher risk-level for DG as a long-term investment. This could explain the elevated put open interest around DG. The stock’s Schaeffer’s put/call open interest ratio (SOIR) of 1.15 is two percentage points from an annual high, meaning short-term options traders have rarely been more put-biased.