Source: Wikimedia Commons

On April 10, before the market opens, Family Dollar Stores (NYSE:FDO) will release its revenue and earnings metrics for the second quarter of its 2014 fiscal year. Heading into earnings, some investors are probably wondering what to do about the company's shares, especially in light of a dour forecast by analysts. Given this information, is now a prime time to consider buying shares of the discount retailer, or should investors go shopping elsewhere?

Mr. Market's low expectations
For the quarter, analysts expect Family Dollar to report revenue of $2.78 billion. If this forecast proves accurate, it will represent a 4% drop compared to the $2.89 billion the company reported in the year-ago quarter. Excluding the extra week of sales Family Dollar reported during the second quarter of 2013, revenue should rise about 3%.

This lackluster revenue estimate follows the company's performance in the first quarter of its 2014 fiscal year, when comparable-store sales fell 2.8%. In addition to being negatively affected by severe winter weather, Family Dollar admitted to overdoing promotional activity for the quarter, which hurt the business slightly.

  Forecast Last Year Difference
Revenue $2.78 billion $2.89 billion -3.8%
EPS $0.91 $1.21 -24.8%

Source: Yahoo! Finance and Family Dollar

In terms of profits, the picture looks even grimmer. For the quarter, management believes Family Dollar will report earnings per share of $0.91. This represents a 25% drop from the $1.21 the company reported in the year-ago quarter and a 20% decline if investors exclude the $0.07 attributed to last year's extra week of operations.

Could Mr. Market be low-balling the company?
Looking at the data, it's clear that Mr. Market doesn't think much about Family Dollar's prospects for the upcoming quarter. However, investors should think very carefully about taking analysts' opinions too seriously. More often than not, analysts tend to be wrong about where a company is headed. Take, for example, Five Below (NASDAQ:FIVE) and Dollar General (NYSE:DG).

In its most recent earnings release, Five Below reported revenue of $212 million. This represented a 22% jump in sales compared to the same quarter last year and was above the $207.8 million investors wanted to see. In addition to beating on the top line, Five Below reported strong earnings.

  Forecast Actual Difference
Revenue $207.8 million $212 million 2%
EPS $0.45 $0.47 4.4%

Source: Yahoo! Finance and Five Below

For the quarter, earnings per share came in at $0.47. This was 34% greater than the $0.35 the company reported a year earlier and beat analyst estimates by $0.02. In response to the company's strong quarter, shares rallied 14%.

While the case of Five Below is an example of analysts erring in a good way, Dollar General showed what happens when they err in a bad way. For its most recent quarter, the discount giant reported revenue of $4.5 billion. Even though this was 6% higher than the $4.2 billion the company earned a year ago, it fell shy of the $4.6 billion investors desired.

  Forecast Actual Difference
Revenue $4.6 billion $4.5 billion -2.2%
EPS $1.01 $1.01 0%

Source: Yahoo! Finance and Dollar General

Earnings, however, fell in-line with analysts' expectations. For the quarter, Dollar General reported earnings per share of $1.01, 4% above the $0.97 the company reported in the year-ago quarter. However, much to investors' chagrin, the rise in earnings did not come from a rise in profitability. Rather, it was attributed to a 3% drop in the business' number of shares outstanding. In response to these poor results, shares of the retailer contracted 3%.

Foolish takeaway
Based on the data provided, it's not hard to tell that Mr. Market isn't as optimistic about Family Dollar's prospects as investors would like him to be. But it's also important to keep in mind that Mr. Market does, in fact, err when it comes to forecasting how well a given company will do.

In response to this, the smart thing for the Foolish investor to base his or her thesis on would be the company's long-term performance. Using this as a proxy, investors can see that buying into shares of Family Dollar is buying into a company that has had excellent performance over the past few years. Between 2009 and 2013, the company's revenue soared 40% from $7.4 billion to $10.4 billion, while net income jumped an even more impressive 52% from $291.3 million to $443.6 million.

I don't know about you, but buying an unloved, fast-growing business at the 15 times earnings it's currently trading for (compared to Dollar General's 18 times and Five Below's 72 times) looks like an interesting prospect.

Daniel Jones 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.