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Dollar General – A Compelling Buy

An important factor in finding a great investment is finding a company with long-term consistent growth. A long track record of success usually indicates a business model that thrives in any economic environment. Such companies are attractive investments because the likelihood  they will experience a substantial drop in earnings is minimal.

Some of the best investment opportunities lie in companies with a long history of consistent growth and catalysts for continued future growth.  And rarely do these companies trade at valuation multiples less than their historical average, but occasionally such situations do arise.

Currently, Dollar General is an example of a rare, compelling investment opportunity. Dollar General has an astonishing record of consistent growth because it has shown consecutive same store sales growth for an impressive 23 years.  This remarkable consistency is even more impressive considering the United States has experienced multiple recessions during this time period.

Dollar General currently operates 11,000 stores across the United States, making it the largest retailer in terms of locations in the country. It operates no-frills stores, which are not expensive to operate, resulting in high profit margins relative to the retail industry. In 2012, Dollar General’s profit margin was 5.95% vs. 3.62% for Walmart.

There is ample opportunity for future growth.  Dollar General opened its first location in California in 2012. Over time, California should become one of Dollar General’s largest markets with room for over 1000 new stores.  Also, Dollar General still has room for growth in existing states.  Dollar General opened over 600 stores in 2012.

Dollar General’s valuation is very appealing; the forward price to earnings ratio for DG is 15.53. Considering Dollar General usually trades around 21 times earnings, Dollar General has upside of 33% one year from now.

Dollar General has a long track record of consistent performance, catalysts for continued growth in the future, and a low valuation, making DG an excellent investment opportunity.

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