Dollar Tree, Inc. (DLTR), Fred’s, Inc. (FRED) & Dollar General Corp. (DG): The Merchandise is Cheap, But Are the Stocks?

Everything’s $1 or less

When I shop at a dollar store, I go to Dollar Tree, Inc. (NASDAQ:DLTR) where everything is one dollar or less. Not that I wouldn’t patronize other dollar stores if I could, but Dollar Tree is the only one I’ve ever come across.

The company managed to grow at impressive rates as well over these past five years. Net income grew at a 5 year annual rate of 25.2%. Sales grew at a rate of nearly 11.75%, nearly in line with Dollar General Corp. (NYSE:DG).

I was impressed that Dollar Tree, Inc. (NASDAQ:DLTR) expanded net profit margins by 3.7% between 2009 and 2013. Its net profit margin for the most recent year was 8.4%. I’m impressed a company selling everything for a dollar or less can have such good margins.

Dollar Tree has also been buying back its own shares at an impressive rate. Between January 2010 and January 2013, the company reduced its outstanding shares by 14.5%.

Dollar Tree, Inc. (NASDAQ:DLTR) has made some moves that suggest the company is in it for the long haul. The Chesapeake planning commission unanimously approved the company’s proposal to turn a 70 acre plot adjacent to its headquarters into a commercial and residential hub for employees. The company’s plan stipulates that the project will be completed in phases over the next 35 years.

Final Foolish thoughts

Discount merchandisers are wise to normally stay out of large cities, they’ll just end up getting crushed by Wal-Mart Stores, Inc. (NYSE:WMT). However, they do seem to have carved out a niche in lower population markets with a desire for inexpensive merchandise.

None of these stocks appear to be screaming bargains, hardly any stocks are right now. Fred’s is one stock that I would most certainly maintain a safe distance from.

Its tough to make a decision between Dollar General Corp. (NYSE:DG) and Dollar Tree, Inc. (NASDAQ:DLTR). None of them seem like they’ll offer incredible returns in the next few years, but a dollar cost averaging program in each will very likely outperform a savings account.

Dollar General Corp. (NYSE:DG) has been growing its stores, and sales at an impressive rate. However, I personally like Dollar Tree, Inc. (NASDAQ:DLTR) more, it has superior margins, and its trailing twelve month return on equity was nearly 40%.

The article The Merchandise is Cheap, But Are the Stocks? originally appeared on Fool.com.

Ryan Palmer has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Ryan is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.

Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.