In times of economic distress, even I reach for the dollar bottle of Palmolive rather than some funky-shaped fired-glass soap dispenser. Dollar stores are already popular with folks in the lower-income tiers, but nowadays even the supermarkets are losing market share to dollar chains. This is not unexpected given the crappy economy.

Nevertheless, I'm amazed at just how many dollar stores actually exist in the United States. The four largest companies -- Dollar Tree, Ninety-Nine Cent Stores (NYSE: NDN), Dollar General (NYSE: DG), and Family Dollar (NYSE: FDO) -- own some 20,000 stores.

As an investor, it seems like a no-brainer to own one of these companies, given the perilous state of consumers. Fellow Fool Jacob Roche recently compared two retailing heavies, Dollar Tree (Nasdaq: DLTR) and Williams-Sonoma, and Dollar Tree pretty much blew away the competition. But let's take a closer look at these big four deep-discounters.


Dollar Tree

Ninety-Nine Cent

Dollar General

Family Dollar

Market Cap

$6.2 billion

$1.3 billion

$10.2 billion

$5.7 billion






Revenue (TTM)

$5.5 billion

$1.4 billion

$12.4 billion

$7.7 billion






Gross Margin (TTM)





Operating Margin (TTM)











$413.9 million

$40.3 million

$393.2 million

$392.5 million

Net Cash

$213.8 million

$189.8 million

($3.1 billion)

$194.8 million

Source: Capital IQ, a division of Standard & Poor's.

Here's what I notice: Dollar Tree has some enviable metrics. While it trails Family Dollar in revenue per employee, it's the clear leader in operating margins and free cash flow. Its cash on hand is about even with the leaders, but slightly better. In contrast, Dollar General has a ton of debt from its takeover by private equity, which weighs on the business. And its private-equity past is one reason my Foolish colleague Jim Royal thinks it's a cash machine you should steer clear of.

So on an operational basis, Dollar Tree looks like the best here, but how are these rivals priced? On a P/FCF basis, Ninety-Nine Cent is wildly overvalued, especially given its relatively weaker margins and revenue per employee. Dollar General doesn't fare much better. Family Dollar and Dollar Tree are neck and neck, but the tie goes to Dollar Tree because its operational performance is noticeably better.

If you're looking to get into the deep-discounters, it looks as if Dollar Tree is the way to go. The company has a history of having cash on hand and producing great cash flow, and it is beating everyone else operationally. Anecdotally, I've been to all four stores and I find Dollar Tree to have the best service and cleanest stores. Given that this is a business that thrives in good times and bad, with 14% projected compound annual earnings growth over the next five years, I see a potential double in five years.

So I think it's a buy. If only I could actually buy a share of Dollar Tree for a buck ...

Matthew Brown owns shares of Dollar Tree and shops there more often than he can believe. Try any of our Foolish newsletter services free for 30 days. True to its name, The Motley Fool is made up of a motley assortment of writers and analysts, each with a unique perspective; sometimes we agree, sometimes we disagree, but we all believe in the power of learning from each other through our Foolish community. The Motley Fool has a disclosure policy.