Thanks to Jim I made money with DLTR - but have the impression DG currently is more interesting.
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There’s a very good chance you’re right.
Prices matter a lot.
Since my post touting Dollar Tree last September on the Berkshire board…
https://discussion.fool.com/entirely-ot-dollar-tree-34941598.asp…
…Dollar Tree stock is up 63%, DG is down -7% including dividends.
I lightened up on DLTR in late November when the price looked about as good as it was likely to get for a while.
(in this case “lightened up” = “dumped almost all of it”)
Thanks for pointing out that DG is lookin’ not bad…
I don’t think I’ve ever held it, though I’ve watched both for a very long time.
They generally support, and likely deserve, a slight premium based on predictability: steady as she goes.
Price is $202.
Definitely seems like a very good entry at $175-185 if that happens, and I’d crack open my under-used wallet.
But it’s also a great long term pick, so an outstanding entry point isn’t always required to do well over time.
Jim
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Hi Jim,
Thanks! What’s your rule of thumb for buying DG? Is there a P/E multiple where it’s a good buy or an excellent buy?
Definitely seems like a very good entry at $175-185
Exactly that area I also was hoping for when I wrote about it being interesting.
Seems not to happen, so another and very different theme: Anybody having thoughts about PayPal?
Thanks! What’s your rule of thumb for buying DG? Is there a P/E multiple where it’s a good buy or an excellent buy?
Short summary:
Today is good, not excellent, in that it’s only a little cheaper than usual.
But today is in another sense closer to excellent, in that it’s a great firm, so even an average entry get a pretty good result.
Since it’s such a steady earner with steady progress in earnings per share, good old P/E is probably not a bad place to start.
Or, ratio of price to peak-to-date earnings per share if you wanted to get fancy.
Based on earnings yield, at the price right now of $194.78, it’s 4.7% cheaper than its average trailing earnings yield since January 2011.
Basically, it’s trading a P/E of 19 instead of 20.
That’s not a huge discount to its average, but then again, not much is cheap these days, and the baseline progress in value per share for DG is pretty darned good.
A trend line through rolling EPS has risen inflation + 15.2%/year in the last decade.
(that’s pretty good, dude)
As an aside, the trailing real EPS figure is almost precisely on that real trend line at the moment, despite inflation being a thing lately.
Value growth per share could be quite a lot worse in the next decade and still offer an excellent result from here.
Jim
(still don’t own any…no good reason why not)
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(still don’t own any…no good reason why not)
…no longer true…
Starting a position with the stock at $192.74
Jim
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Starting a position with the stock at $192.74
I rotated out of COST (@ $500.57) (well I sold 1/3 of my position) and move that into DG (@ $191.44). I might rotate out the rest shortly.
tecmo
…
Hi Jim,
Thank you for the helpful response on DG.
Between KMX and DG, KMX seems to be a significantly better purchase at current prices.
Analysts are expecting the EPS of DG to be $14.20 and that of KMX to be $10.50 in 2025 (central estimate).
In the past, you have said that paying 10 times the EPS of a firm 5 to 10 years from now is a good idea.
In the case of KMX, at the current price ($101.17), one will pay less than 10 times the expected EPS just 3 years from now.
In the case of DG, at the current price ($191.94), one will pay 13.51 times the expected EPS in 3 years.
Both firms have been valued similarly by the market in the past. The median P/E of both firms in the last decade is 18. So there is no reason to a priori expect a different P/E in 2025 (it may end up to be different, but that cannot be anticipated).
That said, I’m trying to get a handle of the debt of KMX and how risky that might be. If you have any thoughts on that issue, I would appreciate knowing.
Thanks again for the excellent tips (and education!).
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Ooops, I forgot to include dividends. KMX does not pay a dividend, but DG pays a small dividend (of less than 1%). But even after accounting for that, KMX comes out significantly ahead.
That said, I’m trying to get a handle of the debt of KMX and how risky that might be. If you have any thoughts on that issue, I would appreciate knowing.
You mean you’re thinking of buying some of their debt as an investment, or you’re worried about how much debt they have?
For the latter, their balance sheet is a bit misleading unless you dig.
They do securitization to finance their own financing of vehicle purchases, and keep a lot of debt on their books which isn’t really “theirs”.
Much of it is non-recourse. (i.e., is it really debt if you’re not on the hook for it?)
It’s a fairly difficult process coming up with a nuanced and accurate view of their debt situation,
when you consider loss allowances and so forth as you would for an insurer.
But rest assured that it’s not the high debt load it looks like at first glance.
A couple of parts of the reports to look at—
"We maintain a revolving funding program composed of three warehouse facilities (“warehouse
facilities”) that we use to fund auto loans receivable originated by CAF. We typically elect to fund
these receivables through an asset-backed term funding transaction, such as a term securitization or
alternative funding arrangement, at a later date. We recognize transfers of auto loans receivable
into the warehouse facilities and asset-backed term funding transactions, including term
securitizations (together, “non-recourse funding vehicles”), as secured borrowings, which result in
ecording the auto loans receivable and the related nonrecourse notes payable on our consolidated balance sheets…
We currently target an adjusted debt to capital ratio in a range of 35% to 45%. At the end of fiscal
2021, our adjusted debt to capital ratio was below our targeted range for the year. In calculating
this ratio, we utilize total debt, excluding non-recourse notes payable, finance lease liabilities,
a multiple of eight times rent expense and total shareholders’ equity. Generally, we expect to use
our revolving credit facility and other financing sources, together with stock repurchases, to
maintain this targeted ratio; however, in any period, we may be outside this range due to seasonal,
market, strategic or other factors."
Jim
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Apparently, yesterday’s big fall was triggered by Home Depot which fell by almost 9%. HD on their earnings call forecast margin pressure on continued supply chain woes.
DG’s lower income customers are less able to absorb price increases than HD’s , so DG’s margins also might be pressured for a few more quarters.
This really should be a short term issue, unlikely to last beyond 2022.
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Hi Jim,
Thank you for pointing me to the sections of the annual report. I did mean the amount of debt they seem to carry on their books. On the surface at least, it seems high. But I had not considered the aspect you mentioned.
I did mean the amount of debt they seem to carry on their books. On the surface at least, it seems high. But I had not considered the aspect you mentioned.
Another layer of protection: Even if they were on the hook for all that “non recourse” debt, it’s also secured debt: a car loan is secured against a car.
It’s relatively easy for them to repossess a car, particularly as they are ideally placed to sell it again at a profit.
Jim
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And today it the turn of another discount retailer TJ Maxx to disappoint. Down over 4% after being down over 7% earlier.
Margins down due to increased freight costs.
But I like KMX, DG.
Understandably. What why catch a falling knife instead of waiting for the fall to end? I had to learn the hard way (T…) that such can go on longer than one would ever imagine.
Why try to pick knives up from the floor when they might fall again and drag you down with them into the center of the Earth?
Buy the index. It has knives, spoons, forks, plates, everything you need for a complete meal.
I mean it’s fun watching individual stocks go up and down in the same way that it’s fun watching trapeze artists. For myself gove me the sedate walk along a winding road any day.
Why try to pick knives up from the floor when they might fall again and drag you down with them into the center of the Earth?
Because as playing chess at least it’s entertaining. If you want a boring investment life buy Berkshire (oh my God, who would do that!).
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mungofitch said:
Since my post touting Dollar Tree last September on the Berkshire board…
https://discussion.fool.com/entirely-ot-dollar-tree-34941598.asp……
…Dollar Tree stock is up 63%
That was on 9/24/21, the exact bottom to the day - wow!!
Yes, wow!!! Kudos to Jim.
Also, Jim, thanks for the additional insights on KMX’s debt.
That was on 9/24/21, the exact bottom to the day - wow!!
To the day? Pshaw.
Bullish call made with the stock at $84.42
52 week low was $84.26, set that same day. So I only missed the bottom by 16 cents : )
Probably within half an hour.
Pure luck of course. But hey, I’ll take credit for anything I can get.
I need the balance—I always like to remember that I touted Lehman in a July 2007 post. Oops.
https://discussion.fool.com/capital-markets-stocks-season-again-…
(the intent was for a few month hold, to be sold Feb-Mar 2008.
Frankly I never checked the result–it might not have been too bad based on this chart.
https://www.researchgate.net/figure/Figure-no1-Evolution-of-… )
Jim
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