Dollar General Corporation (DG Quick QuoteDG - Free Report) recently slipped below its 50-day simple moving average (SMA), indicating a potential short-term bearish trend. Yesterday, DG stock closed at $86.85, staying below the 50-day SMA of $86.99. The stock is trading 41.3% below its 52-week high of $147.87 touched last year in May.

Dollar General Stock Below 50-Day SMA

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Shares of this discount retailer have declined 1.8% over the past month, contrasting with an 8% rise in the broader S&P 500 index and a 4.7% increase in the industry. Dollar General has also lagged behind competitors like Dollar Tree, Inc. (DLTR Quick QuoteDLTR - Free Report) , Target Corporation (TGT Quick QuoteTGT - Free Report) and Costco Wholesale Corporation (COST Quick QuoteCOST - Free Report) . Shares of Dollar Tree, Target and Costco have risen 19.4%, 7.6% and 2.3%, respectively, over the past month.

Dollar General Stock Past-Month Performance

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Is Dollar General Undervalued at Current Levels?

With shares trading below the 52-week high, investors may wonder if Dollar General offers a bargain. DG is currently trading at a forward 12-month price-to-earnings (P/E) ratio of 15.18. This valuation reflects a discount compared to the industry’s average of 32.64 and the S&P 500's P/E of 21.59. However, the stock appears overvalued compared to its median P/E level of 13.62, observed over the past year.

Dollar General is trading at a premium to Target (with a forward 12-month P/E ratio of 10.89) but at a discount to Dollar Tree (15.88) and Costco (51.97). 
 

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What’s Weighing on DG Stock?

While Dollar General’s valuation appears attractive relative to historical levels and peers, the discounted price reflects ongoing challenges. The company’s core customer base, which is highly sensitive to inflation and economic pressure, continues to experience financial strain. Despite efforts to maintain low prices, traffic declined 1.1% in the final quarter of fiscal 2024, reflecting the challenges consumers are facing. The company is not expecting meaningful macroeconomic relief for its customer base in 2025. 

Management expects selling, general and administrative expenses to deleverage in 2025, citing persistent headwinds such as retail wage inflation of 3.5%-4%, normalized incentive compensation (about $120 million impact) and elevated depreciation from prior capex cycles. The first half of fiscal 2025 is expected to be particularly pressured due to upfront remodeling costs and labor-related expenses. 

Dollar General projects EPS to be lower year over year in the first half. We foresee an 11.5% and 7.6% decline in the bottom line for the first and second quarters of fiscal 2025, respectively.

Here’s How Dollar General is Repositioning Itself

In response to operational and competitive pressures, Dollar General is actively executing several strategic moves to stabilize its business and drive future growth. A core component of its turnaround is the “back-to-basics” initiative, which has already yielded meaningful operational improvements. The company has achieved a 6.9% reduction in inventory per store and removed approximately 1,000 SKUs, leading to greater efficiency and improved productivity across stores and distribution centers.

Dollar General plans an ambitious 4,885 real estate projects in 2025. This includes 575 new stores in the United States and up to 15 new locations in Mexico, underscoring its long-term expansion strategy. The company will fully remodel 2,000 stores, enhance 2,250 stores through Project Elevate and relocate 45 locations. Project Elevate, which targets mature stores, is designed to deliver a 3%-5% first-year comp sales lift while reducing future maintenance costs. In parallel, Project Renovate — focused on comprehensive remodels — is expected to generate a 6%-8% sales lift. 

On the digital front, Dollar General is expanding its same-day delivery initiative through its partnership with DoorDash. What began as a 400-store pilot is projected to reach up to 10,000 stores by the end of 2025. Early results are encouraging, showing higher average order values compared to in-store purchases. To further support its core low-income customer base, the company has also integrated SNAP and EBT payment options into its delivery services. These efforts, coupled with the DG Media Network, are aimed at accelerating customer acquisition, enhancing engagement and driving gross margin improvement.

Despite a product mix heavily skewed toward consumables, which account for 82% of total sales, Dollar General is working to rebalance its assortment. The company aims to increase non-consumable offerings by at least 100 basis points by 2027, a shift intended to support margin expansion while maintaining top-line momentum.

How to Play DG Stock: Buy, Hold or Sell?

Dollar General’s slip below its 50-day SMA reflects valid near-term concerns, including pressure on margins, soft traffic trends and a cautious outlook. However, the stock’s current valuation, coupled with management’s clear focus on operational improvement, store productivity, and digital expansion, suggests that the company is not standing still. While the first half of the year may remain challenged, Dollar General’s strategic repositioning efforts could pave the way for a gradual recovery. Investors should weigh the short-term headwinds against the company’s longer-term initiatives before making a move. For existing investors, holding onto this Zacks Rank #3 (Hold) stock could be wise at current levels. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.