Dollar General (DG) is back in focus after reporting first quarter earnings that topped analyst expectations, lifting net sales, net income and same store sales, and prompting management to raise full year profit guidance.

Even with the earnings beat and higher full year guidance, Dollar General’s recent share price performance has been weak. The stock is down 10.89% on a 1 month share price return basis and 24.21% year to date, while the 1 year total shareholder return is down 6.76%. Longer term total shareholder returns over 3 and 5 years also point to fading momentum.

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With Q1 earnings ahead of forecasts, higher full year profit guidance, and a share price that has fallen sharply over 1, 3 and 5 years, is Dollar General now trading at a discount, or is the stock already pricing in future growth?

Most Popular Narrative: 24.8% Undervalued

Dollar General's most followed narrative pegs fair value at $137.93 a share, compared with the last close of $103.70, framing a sizable valuation gap for investors to weigh.

Remodeling efforts (Project Renovate and Project Elevate), along with expansion of higher margin nonconsumables and continued development of private label brands, are improving store productivity and encouraging higher basket sizes, helping to drive gross margin expansion and profitable earnings growth.

The fair value story rests on more than just store facelifts. It leans on a specific mix of revenue growth assumptions, margin rebuild and future earnings multiples that look quite different from recent share price performance. Curious which of those levers carries the most weight in that $137.93 figure?

Result: Fair Value of $137.93 (UNDERVALUED)

However, the story could change if rural store expansion starts to strain same store sales or if rising labor and operating costs pressure margins more than expected.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.