Dollar General Is on Track for Its Worst Year Since Its IPO. Is This a Huge Buying Opportunity?

To say that it has been a bad year for Dollar General (DG -0.41%) stock would be putting it mildly. The company's stores provide consumers with day-to-day essentials, and they are competitively priced. That's normally a solid recipe for stability and success. In prior years, it has been.

But in 2023, the retail stock has nosedived an incredible 58%. What is going on? And can the company turn things around? Let's see.

A stock that normally beats the market

Prior to 2023, Dollar General was a top-performing stock that investors didn't have to worry about being a good investment or not. Between the time it went public in 2009 and the end of 2022, shares of Dollar General soared an incredible 983% -- far higher than the S&P 500's gains of 251%.

To put into perspective just how awful the stock's decline has been this year, here's how Dollar General has performed since 2010 compared to the broad index:

Source: YCharts

Why have investors been so bearish this year?

Many retailers are facing tough economic conditions and are arguably in similar boats this year. But few of them are crashing as hard as Dollar General is. Dollar Tree is down 26%. Target has fallen by 29%. Dollar General losing half of its value is a steep cut for the business.

The company has, unfortunately, given investors many reasons to be bearish on its operations. This year, it has provided an underwhelming forecast multiple times. In February, it projected its profit to rise between 4% and 6%, while Wall Street was expecting growth of more than 10%. Rising costs and steeper discounts to move inventory were part of the reasons the company wasn't too optimistic for the year.

Then, in June, things went from bad to worse when it projected earnings per share for the year to be down as much as 8% and, under the best-case scenario, it would be flat. Wall Street often punishes stocks for underwhelming guidance, and Dollar General's performance is indicative of that.

CEO Jeff Owen didn't sound too reassuring, either, stating that the company was "controlling what we can control," blaming the poor macroeconomic conditions on its struggling numbers this year. The company's growth rate has been falling, and with an uninspiring forecast ahead, things look to get worse for the business.

DG Revenue (Quarterly YOY Growth) data by YCharts.

Is Dollar General stock too cheap to ignore?

Shares of Dollar General haven't been this low since 2018. At less than 11 times earnings, it looks like a cheap stock, but with the bottom line continuing to fall lower, that multiple will get worse. Based on Wall Street projections, the stock is trading at 13 times its estimated future profits. However, analysts have underestimated Dollar General's poor performance in the past, and investors may be discounting the stock even further, anticipating greater declines.

Although analysts have been reducing their price targets for Dollar General, the consensus analyst price target for the stock is still fairly high at $155, implying an upside of around 50% from where it trades right now. There's certainly a case that can be made for the stock rising in value, but a lot will depend on how Dollar General performs as another underwhelming guidance could result in yet another steep sell-off.

Should you buy Dollar General stock today?

Dollar General remains a top discount retailer. Today, there are more than 19,000 Dollar General stores across the country. That's more than double the 8,362 it had as of the end of its 2008 fiscal year, which ended on Jan. 30, 2009. 

The business has come a long way over the years. While economic conditions are hurting its operations today, they won't last forever. And as the economy is in better shape, the business should recover. Dollar General may be struggling right now, but it's still a profitable business.

As long as you're willing to buy and hold for multiple years, this can make for an excellent retail stock to add to your portfolio.