Dollar General (DG)

Total return at 5 years: 7.9%/year = 6.1% appreciation + 1.8% dividend. The target price ($170) is ex-dividend; the $13 in dividends collected over 5 years are added separately.

By both methods, the value today (DCF $308 · Multiples $148) exceeds the market price ($127).

Today — fairly valued: at $127 trades ~14.3% below its value discounted to today (~$148); the discount is positive but does not reach the margin of safety we require (≥38%).

At 5 years — En valor: the target price ($170) plus dividends yield between the 4% floor and the 10% average return — a reasonable return, though without the margin of a great investment.

The bridge: the return at 5 years exceeds the risk-free rate (4.5%) — but the discount does not reach the required margin of safety (≥38%). To require a 15% annual return, it would need to be bought at ~$93.

Educational / informational. Does not constitute investment advice.

The inverse approach: instead of projecting growth to obtain the value, the market price ($127) is taken as given and it solves for what annual owner-earnings growth would need to hold for 5 years for the present value —at the method's rate (4.5%, no-growth terminal)— to equal that price. It is the disconfirmation test: the expectations the price already pays for, contrasted against the method's projection.

The market discounts less growth (-14.9%/year) than we project (3.6%/year) → if the base case holds, there is margin: perception is more pessimistic than the estimated reality.

That growth implies ~$1.2 bn of owner earnings in year 5 (vs ~$3.1 bn of our base case). It recalculates if the DCF assumptions are edited.

Year-by-year projection of the selected scenario. From each year, two versions of the flow are derived: growth FCF (operating flow − total capex, the cash surplus) and maintenance FCF (the owner earnings: what the business yields if it only sustains its capacity). The flow is returned almost in full (dividend + buyback) or redeployed into the operation, so that EV stays roughly flat and multiples compress because the metric grows, not because of cash accumulation. The valuation is done on Resultado operativo normalizado (EV/EBIT). In edit mode, revenue, margins, capex, and exit multiples can be adjusted.

Year-0 is the TTM as of July 31, 2026 ($43.64bn of revenue, +4.8% year-over-year), with margins normalized: it removes the net tariff reimbursement from reinvestments that the company quantifies at approximately $0.25 per diluted share in the second quarter of fiscal 2026, equivalent to about $55M after tax and about $73M pre-tax at the guided effective tax rate of 24.5%. With that, the year-0 operating margin goes from 5.59% reported to 5.42%, the net margin from 3.90% to 3.78%, and the operating cash flow margin from 7.60% to 7.47%. Year 1 starts from the raised guidance in the August 27, 2026 release (second-quarter fiscal 2026 results), read by its two anchors: revenue growth of 4.0% to 4.3% —versus 3.7% to 4.2% previously— and diluted earnings per share of $7.80 to $8.00, versus $7.20 to $7.45 previously. Guided earnings per share includes that non-recurring reimbursement, so the comparable equivalent is approximately $7.65; the model puts year 1 at about $7.74 for a window ending six months after the fiscal 2026 close, that is, above the comparable floor and not below the published range. Without that reading, year 1 would look like a sub-start that does not exist. The quarter's profitability improvement is real and goes beyond the reimbursement: second-quarter operating margin was 6.81% versus 5.55% a year earlier, with operating income up 29.2%, and the full half closed at 6.38%. That is why the margin path shifts in its entirety from the normalized year-0 while preserving the increments the prior analysis set, rather than being recalculated: operating margin goes from 5.42% to approximately 6.26% by year 5 and net margin from 3.78% to 4.20%, still well below fiscal 2022's operating 8.8%, because competitive pressure and the mix shift toward lower-margin consumables are structural rather than a one-time event. The operating cash flow margin moves in the opposite direction and is likewise respected: TTM operating cash flow fell from $3.50bn to $3.32bn on a working-capital build in the second quarter, so year-0 drops from 8.13% to 7.47% normalized and the entire path shifts with it toward 7.94% by year 5. Capex rises in line with reiterated guidance of $1.4bn to $1.5bn for fiscal 2026. The revenue path decelerates smoothly from 4.0% in year 1 toward durable growth of 3.2% by year 5, consistent with a maturing discount chain: net store openings decelerated sharply from fiscal 2023 to fiscal 2025 (882, 608, and 299 net stores), and although the first half of fiscal 2026 added 255 net versus 152 a year earlier, remaining growth increasingly depends on same-store sales. The company closed the quarter with 21,148 stores and 161.5 million square feet of selling space, 1.9% more than a year earlier. No buybacks are modeled. The company announced in the same release that it expects to resume them in the second half of fiscal 2026 for up to $700M under the already-approved program, but the revealed net reduction in share count remains nil —221.5M diluted in the second quarter versus 220.9M a year earlier—, and the convention is to anchor on revealed behavior and treat the announcement as corroboration, never as the number. If the buyback is executed, the effect on per-share value is upside not discounted. The base case's exit multiple stays at 17 times, in the lower third of the 16 to 22 times specialty-retail band, reflecting an eroding moat and a modest 3.2% terminal growth rate, though above the floor because return on invested capital —approximately 14.9% on invested capital of $12.27bn at quarter-end— comfortably clears the 10% bar. The adverse case stresses year 1 below the guidance floor (2.0% versus 4.0% guided) and gives back the last half's margin recovery; the favorable case assumes the second quarter's margin expansion holds and extends.

Today's elevated multiple is the price of growth: if the business grows, the entry point cheapens on its own going forward (the metric grows while EV stays roughly flat). The exit multiple at 3 years is higher than the terminal at 5 years —at 3 years there is more growth still ahead—, so the value curve shows whether value creation is concentrated in the early or the later years. The required return is applied to the base scenario.

They are valued separately, with their own rationale, and are not incorporated into the base or the verdict (they are excess return). When assigning them value — in Editmode —, the total with optionalities updates live, without moving the base.

The verdict, the base CAGR, and the margin of safety are always calculated on the base; optionalities do not alter them (with optionalities at $0 they do not move).

Each card fixes a required annual return and answers: if the business is worth $170 in 5 years, what is the maximum that can be paid today to obtain that return? Since it now trades at $127, the margin of safety is how much cheaper the market is than that maximum. The three thresholds: 4% covers inflation (the floor), 10% is the long-term average return, and 15% is the level of a great investment.

With a target price of $170 in 5 years plus $13 of dividends collected (the dividend adds to the return, not to the price) and a required return of 4.5% annually, the maximum to pay today is $148. Against the current market price ($127), the margin of safety is 14.3% (trades below the maximum → there is margin) and the total return at that price would be 7.9% annually.

• Entry multiple vs. archetype band. Trades at 13× operating income over the last twelve months, against a chosen exit multiple of 12.5×.
• Expected 5-year return. +8% at market price, in the Fairly valued zone.
• Margin of safety. It trades close to intrinsic value, far from the required margin of safety.
• Dividend. Sustained yield with a moderate payout (~34% of net income).
• Adverse scenario. Plausible if pressure on the low-income consumer and competition intensify at the same time.
• Favorable scenario. Requires the margin recovery to continue toward levels closer to fiscal 2023.
• Comparison with its own history. The current multiple is near the stock's own recent average, not at an extreme.

Each margin over sales, year by year: historical (solid line) → projection (dotted).

• ✓ ROIC exceeds the cost of capital (~10%)
• ✓ CFROIC backs up the ROIC (166%, cash vs. accruals)
• ✓ Healthy balance sheet (low corporate debt)
• ✓ Durable competitive moat (multiple advantages)

• Return on invested capital. ~14.5% over the TTM, above the 10% bar.
• Cash conversion. Operating cash flow grew faster than net income in recent fiscal years.
• Margin recovery. The operating margin is recovering from 4.22% (fiscal 2024) to 5.26% (TTM), still far from the 8.8% of fiscal 2022.
• Working capital. The release of working capital supported recent operating cash flow growth.
• Stock-based compensation. Low SBC, ~0.2% of TTM revenue; no material distortion in the metric.
• Financial leverage. Long-term debt of US$4.56bn; the credit rating was downgraded to Baa3 in 2025.
• Historical consistency. Positive same-store sales in nearly every year since 1990.

Annual levels from the official filing (10-K); the % over each bar is the year-over-year (YoY) growth vs the prior year.

Dollar General's business is best read through same-store sales (traffic × average ticket) rather than consolidated revenue growth, because the new-store-opening component — the other traditional growth driver — decelerated sharply over the last three years. Category composition (consumables vs. seasonal/home/apparel) matters because the higher-margin categories carry little weight in the total mix.

The % are the annual (year-over-year) growth: each year —historical and projected— vs the prior one; the TTM (trailing 12m) vs the TTM of a year ago, to avoid overlapping windows. The historicals are exact figures from the official filings; the projected years come from the year-by-year model (the intermediate years without their own series are interpolated between the anchors). The projected columns (+1y…+5y) are 12-month windows counted from the TTM close (31-jul-2026): the projection starts from the most recently reported data, not the fiscal year. The projected base is realistic and unbiased — the risk discount is applied at the end, via the required return. The rationale for each metric is in the (i).

• Recent revenue growth. +4.7% year-over-year in the TTM, accelerating versus fiscal 2023.
• Same-store sales. +2.0% in Q1 fiscal 2026, within the year's guided range.
• Pace of store openings. Decelerating sharply: from 882 net stores in fiscal 2023 to 299 in fiscal 2025.
• Company guidance. Reaffirms and slightly raises guided earnings per share after the first quarter of fiscal 2026.
• Mexico and new formats. Early-stage expansion under the Mi Súper Dollar General banner; still small relative to the total.
• DG Media Network. Early-stage advertising monetization initiative; no reported materiality yet.
• Easy comparisons post-impairment. The fiscal 2024 base, hit by the asset impairment, favors year-over-year comparisons.

• Proximity and low-cost model. ~75% of the U.S. population within 5 miles of a store, in towns where large formats are not profitable.
• Demand recurrence. Consumables, the most recurring category, account for ~82% of sales.
• Product differentiation. Combination of national brands and private label; moderate, not strong, differentiation.
• Pricing power. The discount positioning limits the ability to raise prices without losing traffic to competitors.
• Operating leverage. Improving from the fiscal 2024 trough, but still modest versus the 2022 peak.
• Recession behavior. Positive same-store sales in nearly every year since 1990, with the sole exception of 2021.
• Supplier concentration. The two largest suppliers account for ~19% combined of 2025 purchases.

Not all debt is equal: only the structural needs refinancing; the rest is operational (self-liquidating).

Structural debt is what is exposed to the contraction phase of the cycle; operational debt (leases, matched funding) self-liquidates with the business.

• ✓Leverage (net debt / EBITDA)Net cash $0 bn
• ✓Interest coverage (EBIT / interest)10.7x
• –Liquidity (current ratio)no data
• ✓Cash quality (CFROIC vs ROIC)CFROIC backs 166% of ROIC
• !Value creation (ROIC − 10% bar)+5pp
• ✓Malinvestment test (capex vs incremental ROIC)Capex/D&A 1.2x
• ✓Float / working capitalFrees up cash $0.8 bn (float / negative WC)
• ✓Dilution (SBC % of revenue + shares)SBC 0.2% of revenue

A traffic-light interpreted by the method (not generic): float (negative WC) adds up, capex is judged by incremental ROIC (malinvestment test), and a lender is not subjected to corporate solvency. The (i) shows the derivation of each number.

• Liquidity. Cash of US$1.35bn at the close of Q1 fiscal 2026; healthy current position.
• Leverage. Long-term debt of US$4.56bn; the rating was downgraded from Baa2 to Baa3 in 2025.
• Interest coverage. TTM EBIT covers interest expense with ample headroom.
• Debt maturities. No verified maturity schedule detail in the available facts; the gap is disclosed.
• Free cash flow generation. TTM free cash flow (OCF minus total capex) positive and growing versus fiscal 2023-2024.
• Unexecuted buyback authorization. US$1.38bn of authorization available at the close of fiscal 2025, with no recent use.

Who owns the shares — the alignment and whether there is a controlling shareholder.

• CEO continuity. Vasos returned in October 2023 with seven years of prior tenure at the company.
• Skin in the game. Director and officer ownership under 1%; no founder controlling shareholder.
• Capital allocation discipline. Paused pOpshelf after weak results and prioritized debt and capex over buybacks.
• Communication of mistakes. Acknowledged the pOpshelf impairment in the financial statements and adjusted the format in 2025.
• Incentive alignment. No verified detail in the filing on compensation tied to specific operating KPIs.

• The US$214.2M impairment charge in fiscal 2024 (store portfolio and pOpshelf review) sank that year's GAAP earnings, leaving a low comparison anchor from which the current recovery looks more modest than it is in cash terms
• Widespread pessimism about spending by the low, fixed-income consumer (SNAP eligibility changes since 2025), which the market extrapolates evenly across the entire customer base
• The credit rating downgrade to Baa3 in 2025 generated noise about leverage, even though interest coverage with current EBIT remains ample

The stock's decline combines real market motives (perception) with a genuinely eroding moat (reality): not all of the gap is opportunity. The estimated return (+8%) reflects that mix — this is not a story of extreme undervaluation, but of a defensive business trading near its own historical multiple.

The annual return (CAGR at 5 years) in each scenario, with the total period return below — the margin of safety made visual: upside range wide, downside range narrow.

Even in the bear scenario, the return holds at -1%/year (-6% total): the margin of safety protects the downside. The bull (+16%/year, +108% total) exceeds it comfortably — a favorable asymmetry, with a narrow downside range and a wide upside range.

• Low-income consumer and SNAP. Changes to social assistance program eligibility since 2025 could reduce spending by a significant part of the customer base.
• pOpshelf execution. The format already generated a significant asset impairment in 2024 and its strategy remains under review.
• Leverage and credit rating. The downgrade to Baa3 in 2025 raises the cost of accessing new debt if it recurs.
• WOTC credit expiration. The Work Opportunity Tax Credit expired at the end of 2025; the company warns of a negative impact on future earnings per share if it is not renewed.
• Tariffs and China concentration. A substantial portion of imported merchandise comes from China, exposed to shifting trade policy.
• Structural competition. Walmart, Family Dollar, and Dollar Tree have greater financial and distribution resources.

Each thinker's analytical framework applied to our data.

• Buffett / Graham Quality + margin of safety

  Fails the quality gate: narrow moat, eroding.

• Peter Lynch Growth at a reasonable price (GARP)

  A stalwart growing 4% at a multiple/growth of 3.6 → expensive for its growth.

• Joel Greenblatt Cheap and high-return (Magic Formula)

  Earnings yield 8% (EBIT/EV) + ROIC 15% → brushes the Magic Formula.

• Howard Marks Perception vs reality + cycle

  The price discounts -15% vs our 4%: perception is more pessimistic than reality, with an identified source of the discount.

• Seth Klarman Capital protection (bear scenario)

  Bear-scenario floor -3%/yr, bull-scenario ceiling +14%/yr over 5y: reasonable asymmetry, without an ample cushion.

• Pat Dorsey Moat strength (Five Rules)

  A narrow moat, eroding; sources: cost advantage, efficient scale, intangibles → fails the Five Rules.

• Aswath Damodaran Expectations implied by the price

  Justifying the price requires discounting -15%, within what we project (4%) — the story squares with the numbers.