Dollar General Up 51% in 6 Months: Time to Cash Out or Hold DG Stock?

Dollar General Corporation DG has made an impressive comeback, rising about 50.8% over the past six months. The rebound has been driven by renewed investor confidence in the company’s ability to stabilize operations, improve profitability and regain lost ground after a challenging period. With shares now trading significantly higher, investors are faced with a critical question: Is it time to book profits, or does Dollar General stock still warrant a place in portfolios?Closing yesterday’s trading session at $107.60, Dollar General has outpaced the industry, which has fallen 0.1%, and the broader S&P 500 index, which has risen 2.3% in the said period.Dollar General has even outperformed its peers, such as Ross Stores, Inc. ROST, Costco Wholesale Corporation COST and Target Corporation TGT. While shares of Costco have risen 0.6% in the past six months, Ross Stores and Target have declined 9.8% and 25.9%, respectively.DG Stock Six-Month PerformanceImage Source: Zacks Investment ResearchTailwinds Behind DG’s MomentumMuch of the optimism surrounding Dollar General’s momentum stems from management’s successful execution of strategic initiatives aimed at revitalizing growth and profitability. DG’s focus on store improvements, operational efficiencies and customer engagement is beginning to pay off. These efforts have helped Dollar General capture market share across both consumables and non-consumables. Moreover, its ability to attract higher-income customers seeking value has broadened its customer base and enhanced its growth potential.Margin expansion is another key driver supporting Dollar General’s investment appeal. The company expanded gross margins by 78 basis points to 31% in the first quarter, largely driven by shrink mitigation efforts, which contributed 61 basis points alone. This positions Dollar General well for continued margin gains throughout 2025. Inventory management has also been a source of strength, with inventories declining 5% year over year to $6.6 billion, including a 7% reduction on a per-store basis, despite sales growth. The company’s real estate strategy also supports a positive long-term outlook. For fiscal 2025, Dollar General plans to execute approximately 4,885 projects, including 575 new store openings and 4,250 remodels through its Project Renovate and Project Elevate programs. These initiatives are expected to enhance performance across its store base, with remodeled stores targeted to deliver comp sales lifts of 3%-8%.Dollar General’s ongoing digital transformation adds another layer of opportunity for investors. The company’s partnership with DoorDash drove delivery sales up more than 50% year over year, while its own same-day delivery service expanded to more than 3,000 stores. The acceptance of SNAP/EBT payments for delivery orders broadens access to its core customer base and reinforces its value proposition. Additionally, the DG Media Network grew retail media volume by 25% year over year in the first quarter, offering a high-margin revenue stream and enhancing customer engagement through targeted advertising.Reflecting confidence in the future, management raised full-year guidance following first-quarter outperformance. Dollar General now expects net sales growth of 3.7%-4.7%, same-store sales growth of 1.5%-2.5% and earnings in the range of $5.20-$5.80 per share. These revisions underscore management’s belief in the company’s ability to execute despite ongoing macroeconomic challenges. Moreover, the reaffirmation of long-term targets, including operating margin expansion to 6%-7% by 2028, provides investors with further confidence in the sustainability of Dollar General’s growth and profitability trajectory.What May Derail DG’s Momentum?Dollar General’s recent stock rally masks several risks that could derail the stock’s momentum. One key concern is the uncertain tariff environment. While direct imports are limited, less than 40% of indirect imports still come from China. Higher tariffs could lead to price increases, pressuring Dollar General’s value-focused customers.Rising costs complicate the outlook. SG&A expenses rose 77 basis points to 25.4% of sales in the first quarter, driven by labor, incentive compensation and maintenance costs. Management expects $180-$200 million in incentive-related headwinds for fiscal 2025, with wage inflation of 3.5%-4% adding pressure. These factors make achieving long-term margin goals more difficult.Traffic trends also remain fragile. While traffic dipped just 0.3% in the first quarter, management acknowledged a tough comparison. Although May showed improvement, sustained traffic gains are crucial to meeting comp targets tied to margin recovery. Any weakness in customer visits could derail these efforts and prolong the path to stronger earnings.Here’s How Estimates Shape Up for DGWall Street analysts have expressed confidence in Dollar General by raising their earnings estimates. Over the past 60 days, the Zacks Consensus Estimate for the current and next fiscal years has risen 3.2% to $5.76 and 4.1% to $6.38 per share, respectively.  Image Source: Zacks Investment ResearchIs Dollar General Stock Undervalued or Overvalued?Dollar General is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 17.79. This valuation reflects a discount compared to the industry’s average of 31.71 and the S&P 500's P/E of 22.73. However, the stock appears overvalued compared to its median P/E level of 13.62, observed over the past year.Dollar General is trading at a premium to Target (with a forward 12-month P/E ratio of 12.99) but at a discount to Costco (48.07) and Ross Stores (20.63).  Image Source: Zacks Investment ResearchIs Holding DG Stock the Best Option Now?Given the sharp rally, current investors may consider holding Dollar General stock to capture further upside as the company continues to execute on its strategic priorities and benefits from improved operational performance. However, potential investors should exercise patience as much of the near-term recovery appears priced in, and risks tied to tariffs, costs and traffic trends remain. A wait-and-watch approach could offer a better entry point, particularly if broader market volatility or company-specific challenges create more favorable valuations. DG stock currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.Zacks' Research Chief Names "Stock Most Likely to Double"Our team of experts has just released the 5 stocks with the greatest probability of gaining +100% or more in the coming months. Of those 5, Director of Research Sheraz Mian highlights the one stock set to climb highest.This top pick is a little-known satellite-based communications firm. Space is projected to become a trillion dollar industry, and this company's customer base is growing fast. Analysts have forecasted a major revenue breakout in 2025. Of course, all our elite picks aren't winners but this one could far surpass earlier Zacks' Stocks Set to Double like Hims & Hers Health, which shot up +209%.Free: See Our Top Stock And 4 Runners UpWant the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report Target Corporation (TGT): Free Stock Analysis Report Dollar General Corporation (DG): Free Stock Analysis Report Costco Wholesale Corporation (COST): Free Stock Analysis Report Ross Stores, Inc. (ROST): Free Stock Analysis ReportThis article originally published on Zacks Investment Research (zacks.com).Zacks Investment ResearchWeiter zum vollständigen Artikel bei Zacks Weiter zum vollständigen Artikel bei Zacks