Dollar General stock Analysis! Generational Buying Opportunity?

Dollar General is down 32% after reporting earnings it was a massive massive move to the downside you know earnings were absolutely terrible it wasn't just for Dollar General but a lot of the retailers have been struggling a lot of them and for earnings it wasn't the best dollar 70 versus $1.79 a pretty decent Miss they also missed on revenue and this is a stock I covered many times before I was bearish on it and it made a new low and this is this is the thing with retail stocks I mean you really don't know why happens you could just be fine and the Stock's going up 40 45% everything is great then something happens and it makes another low and that's how it is with lot of these stocks but for guidance guidance was really the worst and the same stores it was one to 1.6 versus 2 to 2.7 and it wasn't good at all earnings per share was a disaster at least Ulta held up in earnings per share somewhat this one is a disaster 550 to 620 versus 680 to to 755 and I just want to discuss some things that I've been saying for a while and someone highlighted this point on Twitter which is their Home Products which Home Products is mainly you know non-consumable kind of stuff that people want but they don't like consume always maybe they buy something every once in a while for their home or accessories or gadgets or even apparels and other stuff apparels was down 1.3% but Home Products was down 7% and a lot of people used to go to these stores to buy stuff for around $5 $6 you know two three four five $6 stuff and a lot of them right now are buying them on teu because teu has emerged and L of them they just buy them on teu so they don't really go to Dollar General Dollar Tree anymore they buy them from teu now for consumables it's up 6% for the company but this is their lower Marg items the highest margin item is always a discretionary stuff that's why Target suffered before they used to sell lot of TVs and stuff much more than groceries but this is where the margin is is in the discretionary items not in selling groceries and other kind of items and chocolate and stuff like Dollar General sell and this is what's happening timu is also having a pretty decent effect on Dollar Tree Dollar General and all these things but the worst part about it which is what I discussed in my videos before was the share buyback the company and the stock hasn't been doing well and the company has not purchased any stock and it's not planning on purchasing any stock the main reason it's not planning on purchasing any stock is because it cannot purchase any more stock because the long-term obligations on this thing is 6.2 billion dollars and I'm going to talk about the maturities and explain to you why the company cannot buy back any stock which really sucks because whenever the stock is going down this much this is when you want the company to buy back this is when you want the company to create value for shareholders but this hasn't been the case because the company did level up before they were using cash and using Dept to buy a stock at 52 week high they've been buying stock for years from 2020 2021 I could Define this chart and show you over here they've been buying stock every single year but now is the time to be buying stock and they can't really buy back stock as much as they want to because they have so much debt that they have to pay and they do have dividend obligations so dividend is a 2.8% dividend yield one of its highest ever it's pretty pretty high 2.8% dividend and that comes up to around $517 million per year now for free cash flow for 2024 which is fiscal year 2024 is 2025 you have to look at your 2025 numbers it's expected to be 1.4 billion a massive rebound from 700 million although I don't believe it because this is all estimates and estimates have been optimistic for the sake of the argument I'm going to use this $1.4 billion I'm going to just use 1.3 billion to a Lory point and let's assume that free cash flow will end up being 1.3 billion for the entire year 1.3 billion we take out the 500 million in dividends that would leave us with around $800 million to pay down the debt or do dividends or do I should say BuyBacks and the company does have a lot of debt too they have $749 million due in 2024 they have $499 million I can zoom in a little bit $499 due in 2025 2027 starts getting a little bit better they have nothing in 2026 like 600 millions and 500 50 so they have to get through 2024 and mid 2025 before the company could start buying back stock again because the free cash flow would have expanded it is expected to expand massively as cap X you know rolls down a little bit and profitability improves in general so if free cash flow does expand this much and they could get rid of the maturities in 2024 and some of the ones in 2025 then the company can come back and start buying stock 2 3% of the market cap in a major way let's like it used to that would be amazing for shareholders but right now there's handcuffs on the management they cannot really buy back stock and they're not planning to buy back stock because they do have the dividend the dividend for them is a priority I don't think it will be cut anytime soon unless something major happens but the dividend is staying and they still have to pay down the debt and they have like a billion in cash which is not enough to do all these things and you know keep some liquidity on the side and this is the worst part about investing in Dollar General is this is the best time to be doing BuyBacks the company can't because the previous management they recently changed some of the management but the previous management they really messed it up leveraging taking on debt like Lowe's did and many others buying stock at 52 we High even you know McDonald's did a lot of that stuff but now they're so leveraged up that they can't do any more BuyBacks and it's it's really really bad and I just want to explain one point which I'm going to go more into details in an upcoming video which is called five basic mistakes or valuation mistakes stock market beginners make and it's mainly around free cash flow because on my last video I got some comments saying that I cannot say that the company could use the free cash flow to do dividends and do BuyBacks because I'm not taking into consideration interest expense what about interest expense a lot of you told me interest expense is not included in the free cash flow and I'm not sure what free cash flow you're using but the first line on the free cash flow statement is literally net income and net income is from the income statement and any statement there is interest expense so net income is after interest expense and the first line on the cash flow statement is net income and they're not adding back interest expense so how come interest expense is not included in free cash flow it is included free cash flow is after interest expense and it's the cash that's available for the company to use to do BuyBacks and do dividends and do whatever pay down the debt and do whatever the company wants to do now if you take the 550 which is the lower of their estim is around 15 times earnings so Dollar General right now is trading around you know you say around 15 times earnings and 15 times earnings you know isn't really expensive at all and there's a lot of estimates and you know things from theist which they've been wrong so far they've been wrong on all the retail stocks and they're expecting a massive recovery from 642 to 1181 and if you take the 540 that's more than 100% more than a double over the next 5 years in earnings per share and this is really not bad at all but this this company does have a lot of that and if I'm comparing Dollar Generals to other retailers like Ulta beauty Ulta beauty is also trading at 15 times earnings but Ulta Beauty has better margins than Dollar General I think it has better growth than Dollar General because it's expanding into Mexico and Ulta Beauty has no debt and is currently buying back stock versus Dollar General has a dividend they have handcuffs on them and it cannot buyback stock before mid 2025 so for me if you're a risk taker you know I would say Dollar General looks fairly valued if this is the bottom on earnings then Dollar General looks fairly valued but if I'm comparing it to other retailers in the market it doesn't really make as much sense as a stock like Ulta beauty or a few more I talked about Lululemon and a few others with decent growth and that would be my favorites in the market it wouldn't be Dollar General I mean it could work out but I would prefer a company to do BuyBacks and they can't really do BuyBacks and it's just my opinion on Dollar General it wasn't Financial advice I hope you enjoyed it if you did please please press the like button and maybe consider subscribing so I'll talk to you in another video