Distressed, underemployed consumers are still flocking to Family Dollar (NYSE:FDO) stores to take advantage of its rock-bottom prices. But the discount retailer isn't letting its guard down.

Back in October, the company was taking measures to keep its momentum going. By scaling back on its discretionary inventory, it risked forgoing sales of higher-margin items to make more room for consumables. And at the same time, management aimed to bolster top-line growth by accepting food stamps and credit cards at more of its stores.

Three months later, it's clear that something's working. The company raked in more than $1.82 billion in its first quarter -- up 4% from last year's quarter -- and same-store sales were up 2.4%. Although revenues didn't grow as much as the company had originally anticipated, margins improved nicely, resulting in solid bottom-line growth. Net earnings were 14% higher at $67.6 million, but they grew nearly 17% on a per-share basis after the company spent $25 million on stock repurchases over the quarter.

A value investor's dream?
The results sent shares soaring yesterday, but is Family Dollar a clear buy? Take a look at how its current valuation compares with other retailers.

Company

Price-to-Earnings Ratio

Expected (5-Year) Earnings Growth

BJ's (NYSE:BJ)

14.3

10.3%

Big Lots (NYSE:BIG)

            14.0

13.0%

Family Dollar

14.7

12.8%

Dollar Tree (NASDAQ:DLTR)

15.5

14.2%

Wal-Mart (NYSE:WMT)

            15.4

11.8%

Target (NYSE:TGT)

17.5

13.9%

Costco (NASDAQ:COST)

            24.1

13.2%

Source: Yahoo! Finance.

It's not an easy call. On one hand, you could say that it's relatively undervalued -- but not by much -- based on other earnings multiples in the discount-oriented retailer niche. As a strict value play, I think Family Dollar has some good prospects. Its balance sheet is healthy, and the stock sports a dividend yielding 1.8% at recent price levels. It's not an incredible bargain, but you may want to pay up for quality. And if you're looking for an earnings growth play, Family Dollar has a proven knack for surprising analysts. So you could also make a legitimate case from that standpoint.

If it were my decision, I would base it on how I see the consumer behaving over the next decade. And I tend to believe that people will continue to penny-pinch their way into the next economic cycle. So while Family Dollar isn't a clear bargain -- and it's not a clear growth play -- if you do some soul-searching and your own due diligence, you may find that it's a good fit for your portfolio.

I won't pay you a dollar for your thoughts ... but I'm still interested. Get the discussion going in the comments section below.