Dollar General (DG) Stock Hasn't Bottomed Out Yet

Price and momentum indicators are giving off bearish signals about Dollar General (DG).
By Bruce Kamich ,

NEW YORK (TheStreet) -- Even though Dollar General (DG) - Get Report has corrected lower, it has not yet bottomed, so we would not bet our bottom dollar on DG yet.

In this chart of DG, above, we can see how DG broke down in August, falling below the 50-day and then the 200-day moving averages. A dead cross is visible in early October as the 50-day fell below the 200-day average. The On-Balance-Volume (OBV) line is pointed lower, suggesting that selling is more aggressive than buying and liquidation is still the order of the day. There are no bullish divergences between price and momentum, so no foreshadowing of a turn around.

This longer-term chart of DG, above, does not advance the idea of a bottom anytime soon. Here, DG is below the 40-week moving average and the average line is weakening. The OBV line is not helping, and the Moving Average Convergence Divergence (MACD) oscillator is down. With weak short-term and longer-term pictures, DG could grind down to the lower end of chart support -- around $55.

TheStreet Ratings team rates DOLLAR GENERAL CORP as a Buy with a ratings score of B. TheStreet Ratings Team has this to say about their recommendation:

We rate DOLLAR GENERAL CORP (DG) a BUY. This is driven by a number of strengths, which we believe should have a greater impact than any weaknesses, and should give investors a better performance opportunity than most stocks we cover. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, largely solid financial position with reasonable debt levels by most measures and notable return on equity. We feel its strengths outweigh the fact that the company shows weak operating cash flow.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • DG's revenue growth has slightly outpaced the industry average of 6.0%. Since the same quarter one year prior, revenues slightly increased by 7.9%. Growth in the company's revenue appears to have helped boost the earnings per share.
  • DOLLAR GENERAL CORP has improved earnings per share by 14.4% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, DOLLAR GENERAL CORP increased its bottom line by earning $3.50 versus $3.17 in the prior year. This year, the market expects an improvement in earnings ($3.93 versus $3.50).
  • The net income growth from the same quarter one year ago has greatly exceeded that of the S&P 500, but is less than that of the Multiline Retail industry average. The net income increased by 12.4% when compared to the same quarter one year prior, going from $251.26 million to $282.35 million.
  • The current debt-to-equity ratio, 0.53, is low and is below the industry average, implying that there has been successful management of debt levels. Even though the company has a strong debt-to-equity ratio, the quick ratio of 0.09 is very weak and demonstrates a lack of ability to pay short-term obligations.
  • The return on equity has improved slightly when compared to the same quarter one year prior. This can be construed as a modest strength in the organization. Compared to other companies in the Multiline Retail industry and the overall market on the basis of return on equity, DOLLAR GENERAL CORP has underperformed in comparison with the industry average, but has exceeded that of the S&P 500.
  • You can view the full analysis from the report here: DG

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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