We’ve seen a few insiders from discount stores buying their company stock. Dollar General Corporation (DG) is the latest example. Carman Wenkoff, Executive Vice President (EVP) and Chief Information Officer (CIO) purchased 2,000 shares at $106.25 on September 29, 2023. The EVP invested a total of $212,500.
Prior to his recent buy, Wenkoff was purely a seller. From June 2020 through September 2022, the CIO sold a combined 17,200 shares, between $190.13 and $240.49 in four separate transactions. All in, he pocketed more than $7.7 million. (1)
When a pure seller switches up and makes his/her maiden buy, we call that a change of heart. It’s one of our favorite insider buying angles. As renowned mutual fund manager Peter Lynch put it, insiders sell for a lot of reasons, but they only buy for one reason, to make money. We feel like it’s doubly true for sellers turned into first time buyers.
Dollar General operates 19,488 stores across the United States and Mi Súper Dollar General stores in Mexico. The company provides everyday essentials including food, health and wellness products, cleaning and laundry supplies, self-care and beauty items, and seasonal décor along with many of the world’s most trusted brands.
Perhaps the discount store’s proximity to its 52-week low of $102.77 is what motivated the CIO to write a check instead of cashing one. As we type, DG trades at $103.67, a few bucks below Wenkoff’s price of $106.25, as mentioned above.
Wall Street sees the potential for the EVP and new shareholders to make a handsome profit in the next year with a price target of $146.50. (2) That’s a potential upside of more than 41 percent. Add in a dividend yield of 2.28 percent ($2.36 per year) and the possible total return tops 43 percent.
The stock could get a lift from higher profit and sales in 2024. Analysts expect the company to increase its earnings per share (EPS) to $8.45 next year from this year’s estimate of $7.37. The top line is forecasted to expand by 5.7 percent to $40.87 billion in 2024, up from $38.68 billion in 2023. (3)
As it stands now, DG is valued at 0.59 times sales. A year ago, its price to sales (P/S) ratio was three times higher at 1.68. At just 1 times next year’s projected revenue of $40.87 billion, Dollar General would trade for $186. Using today’s P/S Ratio of 0.59, DG prices out at $109.86, and at $312.84 using last year’s valuation.
OVERALL: Dollar General Corporation (DG) appears to offer above-average total return potential. Based on its recent price to sales history and 2024’s sales expectations, the stock could have limited downside from here.
With a five-year beta of 0.39, DG shares could be appropriate for growth and income investors who prefer less volatility than the S&P 500 and have a time horizon through 2024.
Rich Meyers
1 – https://www.secform4.com/insider-trading/1710325.htm
2 – https://www.secform4.com/insider-trading/1710325.htm
3 – https://finance.yahoo.com/quote/DG/analysis?p=DG