Investment Strategies / Falling Knives
No. of Recommendations: 9
Ive followed the dollar stores for a while now, and have owned DLTR a couple of times - thanks to Jim for his table pounding recommendation a couple of years ago.
DG has been falling recently, and appears to be oversold based on RSI. Additionally, the price ratio of DG to DLTR has now approached levels only seen briefly last winter - after a very short and sharp decline - and before that, not since 2020.
Dollar stores are always appealing in recessionary environments, even if margin compression may challenge earnings. Interestingly, DLTR margins improved last quarter.
Both stocks sport a similar PE of around 19-20.
Dont think either is a screaming buy at these levels, but relatively speaking, DG may offer better chances for short term outperformance, and if you've wanted to own it, this might not be a bad time to start building a position.
No. of Recommendations: 10
DG has been falling recently, and appears to be oversold based on RSI. Additionally, the price ratio of DG to DLTR has now approached levels only seen briefly last winter - after a very short and sharp decline - and before that, not since 2020.
All true. But, in a broader context DG might not be quite as enticing.
Many stock prices have fallen (some a lot) over the last year, which doesn't mean
a lot of bargains are to be had as many stocks were richly priced to begin with.
I suggest that this was the case for DG and DLTR.
Both stocks are still trading in the upper reaches of their P/E range.
It looks as if, on an historical metrics basis, DG is roughly fairly valued
and DLTR is overvalued. Comparing a stock at fair value to an
overvalued one and concluding that the fairly valued stock is therefore
attractive might be a little misleading; a case of relative value.
For what it's worth Morningstar considers DLTR to be moderately overvalued
and DG to be approximately at fair value. I think this is probably roughly right.
No. of Recommendations: 3
Thanks for the reply, Kelbon. I dont disagree. As someone who has followed the dollar stores I was mainly pointing out the relationship between DG and DLTR - but do not consider either a table pounding buy at these levels. DG did / does seem a little oversold, but that might only be useful for those interested in short term trading.
