Why Dollar General May Be Retail’s Most Undervalued Rebound

Key Points

• Dollar General's "Back to Basics" strategy is yielding early positive results, with a focus on improved inventory management and an enhanced shopping experience for customers.
• Strategic growth plans aim to drive sustained financial improvement and enhance shareholder value.
• Recent upward revisions in price targets from financial analysts suggest increasing confidence in the company's positive trajectory and future performance potential.

Dollar General NYSE: DG is one of the leading discount retailers, and the company has seen its stock make impressive headway this year. By late May, the share price had risen approximately 30% over the past three months, climbing from around $85.00 to its current level of about $97.00.

This rise is notable as the company operates in the highly competitive discount retail space, where providing value and convenience is key. Recent signs suggest that Dollar General may be moving past its previous operational issues and entering a new phase focused on growth. Investors are taking notice, watching to see if this signals a lasting positive shift.

Dollar General’s Back to Basics Strategy Delivers

A renewed focus on core retail operations, a strategy Dollar General calls "Back to Basics," is showing early positive signs. This approach was implemented to address past challenges, including inefficient inventory management and product shrinkage. The company's financial report for the fourth quarter of Fiscal 2025 provided initial evidence of progress.

The "Back to Basics" strategy focuses on:

• Smarter Inventory: Enhancing stock management ensures products are on shelves when customers need them, directly boosting sales. (This has been a real problem for Dollar General shoppers currently and in the past.)
• Better Shopping Experience: Initiatives like store remodels under "Project Elevate" aim to make stores more inviting. Dollar General noted that customer satisfaction scores improved in 2024.
• Controlling Shrink: Reducing inventory losses helps protect the company's bottom line and profitability.

These fundamental improvements are crucial steps in what could be a significant operational and financial turnaround.

Dollar General’s Strategies for a Stronger Tomorrow

Dollar General's management is aiming high, targeting an increase in operating margins to 6-7% by 2028 or 2029. This is a notable jump from the 4.2% reported in Fiscal 2024. The operating margin shows how efficiently a company generates profit from its core business operations. Achieving this goal would significantly enhance earnings and is expected to have a positive impact on the stock's value.

Several key strategies are designed to drive this growth:

• Expanding Fresh Options (DG Fresh): The company is increasing the availability of fresh and frozen foods, including produce. This not only meets consumer demand but also aims to encourage more frequent store visits and larger purchases.
• Optimizing the Store Network: Dollar General plans to open 575 new U.S. stores and up to 15 in Mexico in Fiscal 2025. At the same time, it is strategically reviewing its current locations. Recently, it announced the closure of 96 Dollar General and 45 pOpshelf (a separate emerging brand within the Dollar General portfolio) stores to improve overall profitability across its store base.
• Testing New Concepts: A pilot program for fuel stations, now operating at over 40 locations, demonstrates that DG is exploring new ways to offer convenience and attract customers.
• Strengthening Finances: The company intends to repay $500 million of debt in Fall 2025. While share repurchases are paused for 2025, they are expected to resume in 2027, signaling improving financial health and a future focus on returning capital to shareholders.

Dollar General’s Price Targets Are Rising

While the overall Wall Street analyst consensus for Dollar General stock is currently Hold, recent positive actions by several firms suggest a growing belief in the company's turnaround. A Hold rating typically means analysts expect the stock to perform in line with the broader market.

However, note these recent updates:

• UBS Group maintained its "Buy" rating and increased its price target for DG to $120 from $95 in late May 2025.
• Telsey Advisory Group also raised its target to $100 from $85 around the same time, citing early benefits from the company's initiatives.
• Bank of America reiterated a "Buy" stance and lifted its target to $115 in May.
• The Goldman Sachs Group also kept a "Buy" rating and increased its target to $96.

These upward revisions suggest that financial experts are recognizing the positive changes at Dollar General and their potential to improve the stock's future performance.

Is DG Stock a Hidden Gem for Value Investors?

So, what does this mean for investors looking for value?

Dollar General's price-to-earnings ratio (P/E), which compares the company's stock price to its earnings per share, was around 16 based on past earnings.

The stock's forward P/E (based on expected future earnings) was about 17 as of late May 2025.

If Dollar General successfully executes its turnaround and achieves its growth targets for earnings and profit margins, the current stock price might indeed offer an attractive entry point.

The upcoming first-quarter Fiscal 2026 earnings report, expected around June 3, 2025, will be a key moment. 

A strong showing could validate the turnaround narrative and help build investor confidence in the stock’s longer-term recovery potential.

Investors should monitor:

• Same-store sales: Continued positive growth is crucial.
• Profit Margins: Monitor gross and operating margin improvements. First-quarter analyst EPS estimates range from 1.47 to 1.48.
• Management Commentary: Updates on strategic initiatives will be vital.

Investors should also be aware of existing challenges. The core customer base faces ongoing economic pressures, and the retail sector is very competitive.  

Is Dollar General A Turnaround to Watch?

Dollar General is making solid strides in strengthening its business fundamentals. Early positive results from operational changes, clear strategic plans for future growth, and increasing optimism from some financial analysts suggest that the company is in transition.

While risks are present, for investors who see potential in Dollar General's extensive market presence and the effectiveness of its turnaround strategy, this stock presents a developing situation worth careful consideration for potential value.