Halls of Shrewd'm / US Policy❤
No. of Recommendations: 3
Dollar Tree under pressure today as it announces the closure of about 1000 Family Dollar stores over the course of the next few years. Down 15%.
LB
No. of Recommendations: 5
It will be interesting to see what DG reports tomorrow. I sold some of my DG today upon seeing the news and stock price drop on DLTR. I didn't have time today to really did into their earnings report this morning and so mainly did it blind because I was wondering if I might be allocating too much to DG already. In reading the report, it seems like a good move and finally taking the hit for Family Dollar that seemed to be problematic for them for a while. So pretty company specific rather than industry wide issue. The rest of the Dollar Tree business seemed to have done okay, so my sell of a portion of my DG holdings might have been a mistake. I don't think I would have sold the partial stake if I had the time to digest the earnings report.
No. of Recommendations: 4
Possible that both DLTR and DG are heading toward a better future.
DLTR is pulling back from a business that was harming them - the acquisition of Family Dollar. Closing stores there is a good thing for their business, improving their economics quickly. It's an improvement from where they were and probably a good thing that improves their long term prospects. But the valuations for DLTR doesn't suggest its a great deal, although better than it was before their earnings report drop.
DG earnings report was the mixed bag they have been reporting lately. Sales look okay and growth possible, but signaling operating margin pressure looking forward. But an interesting thing that wasn't factored in is the DLTR is also pulling back on Family Dollar and shutting some stores. I think FD competes more with Dollar General than the Dollar Tree brand. Could be wrong about that, but they are both focused more on smaller suburban and rural areas than DLTR seems to be. So DLTR's pull back on Family Dollar brand is good for them but maybe also good for DG by reducing competitive pressure. That might be a marginal benefit compared to everything else they are trying to do, so not something to bank on. But this move by DLTR feels like a move that improves the competitive economics for both companies.
None of this overcomes the risk from things like recession, or prolonged or increasing interest rates. But I am pretty happy continuing to hold the DG that I do. Their valuation is really reasonable, they pay a dividend, continue to show growth rather than shrinkage, and now just need to reduce the drivers of lower margin.
No. of Recommendations: 2
FIVE has now joined the gang and is down 47% YTD.
Not considering it myself,too many questions about the viability of their business model.
No. of Recommendations: 1
The cfo bought quite a bit stock in April. His cost is $136. lol.
I don’t remember the last time a CFO buy his/her own company’s stock. This is got to be a very bullish signal..
No. of Recommendations: 6
The cfo bought quite a bit stock in April. His cost is $136. lol.
I don’t remember the last time a CFO buy his/her own company’s stock. This is got to be a very bullish signal..
Perhaps so.
I find that with these dollar stores the real secret is to avoid letting the current stock price influence your opinion of what it's worth, which is hard. In any given stretch of (say) 2-2.5 years, there always seems to be a point that they're really expensive and a point that they're really cheap. I have done pretty well over the years buying low and selling high. I never nail the top or bottom, and sometimes it takes some patience, but it's not so hard to tell which end of the scale you're at.
For fun, note that Value Line's 3-5 year price target range is $155-235. On the dodgy assumption that they're right, then depending on the 3/4/5 year time frame and the low or high end of that range, those are annualized rates of return in the 10.4%/year - 35.5%/year range from the current price of $94.36. Average of the scenarios 20.6%/year for 4 years to a target of $195.
Things do seem to be pretty unpleasant at the moment for them. Maybe it's a passing thunder cloud, maybe it's going to be a long term problem. But I'll still try to value it based on the dire bumps at the business, not on the dire stock price : )
I don't have any at the moment, though I do have a fair chunk of DG. Not that it has done me much good. The price is higher than when I touted it at mungofitch.com, but lower than where I [most recently] bought it.
Jim
