Issues to consider with dollar store stocks?
Many dollar store goods may be disposable and inexpensive, but that doesn't mean your investment should be. When investing in dollar store stocks, here are five things to think about:
Financial health. Examine gross, operating, and net profit margins to gauge how efficiently the company uses its revenue. Make sure it's not overly leveraged with debt. Review any plans for share buybacks and dividends.
Competitive landscape. Not all dollar stores are created equal in the same areas. See whether stores are concentrated in any one state or region, and compare this to potential competitors.
Economic factors. Dollar stores generally perform best during economic downturns. They can make money in good times, of course, but a buy-and-hold investor shouldn't assume that high profits posted during a recession will continue through good times.
Company factors. Is the company expanding or closing stores, and why? Another key retail metric to consider is same-store sales. Review the company's annual report and monitor top officers to ensure there's no excessive turnover in the C-suite.
Investment strategy. Make sure your investment aligns with your own personal goals and risk tolerance. As always, make sure you're buying a stock that will help you build wealth over the long term.