While certain stocks get a lot of attention from investors, they also tend to run up prices. For instance, tech stocks like Tesla get a lot of press and interest. The shares have also risen from about $60 three years ago to over $1,000 today.
Alternatively, you could look for stocks that haven't had such a tremendous move. These companies don't get a lot of attention right now, but don't worry. As they continue to focus on their businesses and expanding profit, their share prices will reward investors as the market catches up to reality.
Image source: Getty Images.
1. Dollar General
Dollar General's (DG 0.33%) share price has risen by 1.9% over the past year, well below the S&P 500's 14.5% gain. However, this has more to do with Dollar General failing to live up to lofty expectations than business conditions worsening.
For Dollar General's fiscal third quarter, same-store sales (comps) fell by 0.6%. This covered the period that ended on Oct. 29, 2021. But comparing sales over two years, comps were 11.6% higher. This is a more meaningful comparison since last year's sales were boosted tremendously by the pandemic that drove people to buy essentials such as cleaning supplies. In the year-ago period, comps increased by 12.2%.
Dollar General draws customers into its stores by charging low prices, typically less than $10. More than three-quarters of its sales come from the consumables category: everyday items such as paper towels, toilet paper, garbage bags, and milk. These kinds of products do well no matter what is going on with the economy.
No wonder Dollar General had positive annual comps for 30 straight years through 2020. This year, management expects them to fall by 2.5% to 3%, but increase 13% to 14% over the two-year period.
This success has meant that the company continues to expand its number of locations. In 2020, it added nearly 900 stores, and management plans to open more than 1,000 for its fiscal 2021. This includes pOpshelf stores, which have higher-quality merchandise but mostly charge $5 or less.
While starting slowly, with less than 50 stores currently, the company plans to open 1,000 of these locations by 2025. The idea of charging low prices and expanding to wealthier, suburban shoppers sounds appealing. Although it is in the early stage, sales have been $1.7 million to $2 million per store with a better than 40% gross margin, exceeding management's expectation.
Its existing Dollar General stores combined with the new concept should continue to propel growth in sales and profitability.
2. Domino's Pizza
Shares of Domino's Pizza's (DPZ 0.25%) gained approximately 15% over the last year, edging out the S&P 500's increase. However, it remains underappreciated, as a high-flying company like Alphabet saw its share price rise by more than double that of Domino's.
Domino's also confronts difficult sales comparisons to a year ago when COVID-19 drove top-line increases. In its fiscal third quarter, which ended on Sept. 12, 2021, the company's U.S. comps fell by 1.9%. But comps rose by 17.5% in the year-ago period. Compared to two years ago, comps were 15.6% higher. Meanwhile, international comps increased by 15% over the same period.
Domino's was founded over 60 years ago as a pioneer of pizza delivery, and it has grown into the industry's largest revenue generator. It continues to offer affordable food that appeals to a wide range of customers.
In fact, expansion opportunities remain. Over the last year, it increased its number of restaurants by more than 1,100 bringing the total to 18,380. Most of its stores operate as franchises with Domino's receiving an up-front fee and a percentage of the store's revenue. Expanding via selling franchises also allows Domino's to open new restaurants without major capital investments.
Right now, Domino's has to contend with higher costs. As a result, its share price has fallen by 23% since the start of the new year. But demand for its products remains very robust. While its margin could compress in the short run since the company isn't raising prices, its long-term prospects -- with affordable and convenient products -- remain good.
Dollar General and Domino's have been successful for a long time, thriving in various economic climates. While the market might not appreciate them now, steadily increasing revenue and earnings over the years will garner investors' attention for all the right reasons.
