Which Dollar Store Gives You the Biggest Bang for Your Buck?

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Today I will host a battle royale to determine which dollar store is the most worthy of our investing bucks.  The competition will revolve around a trio of dollar stores, including: Dollar General (NYSE: DG), Dollar Tree Stores (NASDAQ: DLTR), and Family Dollar Stores (NYSE: FDO).  Scores will be handed out in a simple high to low manner with the best company receiving a 2 and the lowest a 0.  After running through the most important categories of what makes a good investment for a dollar store, we will see who has the most points and is declared the winner.  Perhaps more importantly, we will decide whether or not they represent a good long-term investment for Fools everywhere.

Sales and Earnings Growth

Our first topic of discussion will be Sales per Square Foot, Sales Growth, and EPS Growth, with each category awarding points.  With no further ado, numbers:

<table> <tbody> <tr> <td><strong>Company</strong></td> <td><strong>Sales per Square Foot</strong></td> <td><strong>10 Year Sales Growth</strong></td> <td><strong>10 Year EPS Growth</strong></td> <td><strong>Points</strong></td> </tr> <tr> <td><strong>Dollar General</strong></td> <td><span>$213</span></td> <td>10.1%</td> <td><span>13.2%</span></td> <td><span>4</span></td> </tr> <tr> <td><strong>Dollar Tree Stores</strong></td> <td>$182</td> <td><span>11.8%</span></td> <td><span>18.7%</span></td> <td><span>5</span></td> </tr> <tr> <td><strong>Family Dollar Stores</strong></td> <td><span>$152</span></td> <td><span>7.3%</span></td> <td><span>9.64%</span></td> <td><span>0</span></td> </tr> </tbody> </table>

 With the highest Sales per Square Foot, Dollar General is able to manage 4 points total, as it also took 2nd in Sales Growth and EPS Growth.  However, it was Dollar Tree Stores who brought home the most points with 5, as it took 1st in Sales Growth and EPS Growth, while finishing 2nd in Sales per Square Foot.  Finally, Family Dolllar was shutout as it lagged behind in all 3 categories.

Leaderboard:  Dollar Tree - 5, Dollar General - 4, Family Dollar - 0

Debt, Dividends, and Share Repurchases

<table> <tbody> <tr> <td><strong>Company</strong></td> <td><strong>Cash/Debt</strong></td> <td><strong>Dividend %</strong></td> <td><strong>% Reduction in Shares (10 Year)</strong></td> <td><strong>Points</strong></td> </tr> <tr> <td> <strong>Dollar General</strong></td> <td><span> 146M/3.03B= .05</span></td> <td><span> 0%</span></td> <td> <span>-1%</span></td> <td><span>0</span></td> </tr> <tr> <td> <strong>Dollar Tree Stores</strong></td> <td><span> 222M/264M= .84</span></td> <td><span> 0%</span></td> <td><span> 32%</span></td> <td><span>4</span></td> </tr> <tr> <td> <strong>Family Dollar Stores</strong></td> <td> 122M/725M=. 17</td> <td><span> 1.5%</span></td> <td><span> 32%</span></td> <td><span>5</span></td> </tr> </tbody> </table>

In the second group of metrics, Family Dollar Stores makes a strong comeback as it posts 5 points, being tied for the lead in Share Reduction, 1st in Dividend Yield, and 2nd in Cash/Debt ratio.  Dollar Tree posts 4 points as it leads the Cash/Debt ratio with a substantially less amount of debt and tied for 1st in Share Reduction.  Finally, Dollar General is the company being shutout this time as it lost every category due to its high debt, no dividend, and an increase in Shares Outstanding.

Updated Leaderboard:  Dollar Tree - 9, Family Dollar - 5, Dollar General - 4


In the final grouping, we will take a look at several major valuations, and whether or not each company represents a good value.

<table> <tbody> <tr> <td><strong>Company</strong></td> <td><strong>PE</strong></td> <td><strong>Forward PE</strong></td> <td><strong>5 Year PEG</strong></td> <td><strong>Price/Cash Flow</strong></td> <td><strong>Price/Sales</strong></td> <td><strong>CAPS Rating</strong></td> <td><strong>Points</strong></td> </tr> <tr> <td><strong>Dollar General</strong></td> <td><span>16</span></td> <td><span>13</span></td> <td><span>0.9</span></td> <td><span>13</span></td> <td>0.9</td> <td>***</td> <td><span>10</span></td> </tr> <tr> <td><strong>Dollar Tree Stores</strong></td> <td><span>16</span></td> <td>14</td> <td><span>0.9</span></td> <td>14</td> <td><span>1.3</span></td> <td><span>****</span></td> <td><span>8</span></td> </tr> <tr> <td><span><strong>Family Dollar Stores</strong></span></td> <td><span>16</span></td> <td><span>13</span></td> <td>1.3</td> <td><span>17</span></td> <td><span>0.7</span></td> <td>***</td> <td>8</td> </tr> </tbody> </table>

Putting up 10 points in the Valuation section, Dollar General appears to be our cheapest stock, boasting a 5 Year PEG of 0.9, a Forward PE of 13 and a Price/Cash Flow of 13.  In a tie for 2nd with 8 points apiece, Dollar Tree and Family Dollar lead in their CAPS Rating and Price/Sales respectively.  So where does this leave us overall?  Let’s take a look:

Final Leaderboard

Bronze:  Family Dollar Stores - 13 points

Silver:  Dollar General - 14 points

Gold:  Dollar Tree Stores - 17 points

Congratulations to Dollar Tree Stores, as they win my first ever point based CAPS selection.  By earning the most points, I will place a 5+ year call on them in CAPS and will continue to watch Dollar General and Family Dollar Stores closely for a future CAPS call.

Foolish Bottom Line

Holding a tie for the lowest PEG at 0.9, another tie in Share Reduction Percentage at 32%, the lowest levels of debt by far, and the highest Revenue and EPS growth rates over the last decade, Dollar Tree looks to be a truly impressive investment.  With over $2 Billion in share repurchases being made in its public history, Dollar Tree has proven time and time again that it has, and will continue to generate strong returns for its shareholders.  With a 5-10% storefront expansion rate being targeted in the foreseeable future, the company has a strong growth runway as it continues to renovate and remodel hundreds of new stores each year.

joryko has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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