The analyst listed plenty of reasons why Dollar General is going to lose value
Dollar General Corp. (NYSE:DG) was slightly below the consensus estimate on both EPS and Revenue front for the 2nd quarter of fiscal year 2016 which was reported on August 25. Street Watchdog Research remained sidelined on the stock for six days following the Q2 earnings, but has finally broken silence and said that the stock is headed towards an even greater slump than what it observed five days ago.
Before the earnings report, the stock was trading in excess of $91 and compared to the current trading price of $75.49 in the premarket, a decline is suggested of almost $15.5 per share, which is about 17% of its total value. Watchdog Research believes that the stock is going to slump further and cited the following reasons.
Revenue growth is likely to decelerate over the next few quarters and this quarter had the worst growth rate of the previous six quarters. The growth was about 9.9% at the end of 2014 and has dropped to 5.81% for the 2nd quarter of the year 2017. Profit growth has continued to decelerate alongside revenue Balance sheet grows weaker as liquidity has dropped significantly down from $580 million in 2015 to only $182 million. Debt load has increased from $1.96 billion to $2.72 billion, further restricting profitability Price cuts for its highest selling products will surely have a negative impact on revenue and gross margins.
From the above highlighted points, it is apparent that there is no single culprit behind the ongoing weakness of Dollar General but for the most part the blame lies with the company’s management for not coming up adequate policies. The analyst cut his price target down to $65 which suggests almost 14% downside to current trading levels. The analyst opinion for the stock consists of nine buy, seven outperform and 10 hold ratings. The stock currently trades at a price of $75.26 and has lost 0.52% in the premarket trading.