No. of Recommendations: 5
I couldn't read the article, as it was behind a paywall, and I am certainly not going to pay to read Barron's. If it weren't already free, I might pay NOT to read Barron's. But in this case, I think they may have it right: the current price is too pessimistic.
Bloomstran makes a very strong case for Dollar General, and for Dollar Tree for that matter, here, starting on p.15, and going on for 8 pages:
https://static.fmgsuite.com/media/documents/569b0a...In a nutshell, he recounts the history of the company and its missteps in the last 4-5 years. He thinks their net margins should be able to recover part way from today's 3.1% to the pandemic high of 6%. Not all the way, with higher labour costs and the shift to lower-margin consumbales, but he guesses the may be able to hit 4.5% once they clean up the mess from the bad decisions his successor made (debt from high priced repurchases, self-checkout, neglecting the stores, etc.) That would be enough to give the shares a 29% annual return over the next 5 years, starting at a $73 price, if his assumptions are correct, including a terminal multiple of 20. His bear case is for margins at only 3.5%, barely up from today, and a terminal multiple of 15, and that would still be enough for annual share appreciation of 16%. Sounds like a margin of safety.
Dollar Tree is Bloomstran's #3 or #4 position (both it and Dollar General are at about 10% of his portfolio's assets), so it's a high conviction bet. I am still not sure enough to make a high conviction bet, but I did buy a few shares on Monday (at $73.95) after reading the first half of Bloomstran's 168 page letter. The whole thing is interesting, but the 8 pages on DG are definitely worthwhile for anyone like me sitting on the fence between wondering whether it's ripe for a rebound vs a classic value trap of a business that is spiralling into insignificance.