Looking For Bargains In The Dollar Tree, Inc. (DLTR) Stores

Dollar General Corp. (NYSE:DG)

Dollar General had $16.0 billion in revenue over the past year. The company reported revenue of $3.9 billion and net profits of $207 million in the latest quarter. Revenues increased 10.3%, profits grew 20.9%, and same store sales increased 4.0% quarter-over-quarter.

Using a capitalizing multiplier range of 14x to 16x on estimated sales of $16.8 billion and average adjusted cash earnings of $1.1 billion, Dollar General looks to have a fair business value of $46 to $52 per share.

Family Dollar Stores, Inc. (NYSE:FDO)

Over the last 12 months, Family Dollar posted $9.6 billion in sales. Quarterly revenues rose 12.7% and profits were flat compared to the previous year. Sales totaled $2.4 billion, with net profits of $80 million. The company also reported a 6.6% same store sales gain for the three-month period.

Assuming yearly sales of $9.9 billion and average cash earnings around $543 million, reasonable intrinsic value is between $60 and $70 a share using a multiplier between 13x and 15x.

Big Lots, Inc. (NYSE:BIG)

Another interesting low-price retailer is Big Lots, Inc. (NYSE:BIG).  Though technically not a dollar store, they offer similar low priced products and serve much the same market. After posting a disappointing June 2012 quarter and reporting that the SEC was investigating their CEO for insider trading, the shares dropped to a low of $27. Though the company’s business model is not as attractive as their dollar store counterparts, Big Lots does have a history of bouncing back from a weak quarter or two. I put the company’s fair value at around $40 a share given estimated revenues of $5.4 billion, average cash earnings of $200 million, and a 12x multiple.

These retailers have lost a lot of favor since their highs last summer, and any additional Street disappointment might push investors further away. However, given their solid business qualities, that might be a good time to consider picking up dollar store bargains for one’s portfolio.

The article Looking For Bargains In The Dollar Stores originally appeared on Fool.com and is written by Bob Chandler.

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