Meet the Monster Stock That Continues to Crush the Market

It's been a tough couple of months for the market. The S&P 500 (SNPINDEX: ^GSPC) is down 14% from its February high, in fact, and toying with its worst April since the Great Depression. Yikes.

If you think every stock is in the red for this timeframe though, think again. A handful of stocks are actually up for this period, seemingly benefiting from the circumstances behind the sell-off.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

One of these few bullish stocks is worth highlighting simply because its current bullishness could be a hint of a bigger-picture recovery. That stock is discount retailer Dollar General (NYSE: DG). Shares are up an incredible 40% since its January low, making it the very best-performing S&P 500 constituent for the three-month stretch.

More than its fair share of challenges

Surprised? It would be a bit surprising if you weren't.

Anyone keeping tabs on the company since the COVID-19 pandemic began winding down in 2022 probably knows the chain of 20,594 small-format discount stores ran into an inventory glut around that time, creating balance sheet and profit-margin problems that haven't fully abated.

It would also be short-sighted to ignore the operating vulnerabilities that were exposed during, after, and because of the coronavirus contagion. These include in-store staffing shortages, an inflation-vulnerable customer base, and improved competition.

And not just competition from Walmart, by the way, which has stepped up its value game of late to leverage the fact that 90% of the United States' residents live within 10 miles of a Walmart-owned store. Liquidation stores like Ollie's and Five Below are making at least a small dent in Dollar General's once-tightly held control of its target market, along with the likes of PDD's uber-cheap e-commerce platform Temu. In fact, market research outfit Earnest Analytics reports a little over 20% of Dollar General's regular customers have also bought from Temu at least once. While that's a minority, it's worth noting that these shared customers spend considerably more money with Temu than they do with Dollar General. Earnest Analytics adds that Temu now controls nearly one-fifth of the United States' deep-discount retailing market.

Then there are fresh import tariffs, of course. Even if the bulk of Dollar General's inventory isn't sourced overseas, some is.

The planets are finally aligning

So why are Dollar General shares suddenly soaring? And, will the bullishness last?

To be fair, Dollar General's stock started out the new year with something of an advantage. Shares plunged in August, perhaps overreacting to poor second-quarter numbers paired with equally poor Q3 guidance that were already more than baked into the stock's price by that point.

Fanning these bullish flames is rival Dollar Tree's (NASDAQ: DLTR) recent decision to finally shed its long-beleaguered 7,722 Family Dollar stores, which are direct competition to Dollar General's stores. Although Family Dollar could flourish once allowed to operate independently of the Dollar Tree brand, the decision to offload this arm confirms that it's languishing. It will also take some time for Family Dollar's new owners to figure out and then fix what's truly broken, giving Dollar General time to win over any displaced/frustrated Family Dollar customers.

Just as bullish, though, is the upside of several less apparent growth-driving initiatives, some of which even materialized prior to the pandemic.

One of these initiatives is an investment in an artificial intelligence-powered solution that optimizes the ordering and distribution of fresh produce in stores that carry fruit and vegetables. Another is an investment in people. After a couple years' worth of complaints from employees as well as shoppers -- not to mention several fire-safety fines -- in 2023 the company committed to investing an additional $100 million per year to ensure adequate in-store staffing and operability.

For perspective, Dollar General does roughly $40 billion worth of business per year, but spends on the order of $10 billion on selling and administrative costs to produce less than $2 billion worth of annual income.

Then there's the even-bigger factor working in the company's favor. That's the return of Todd Vasos to the helm.

While it wouldn't be accurate to say his understanding of what works for Dollar General was always on target, there's no denying Dollar General saw most of its growth after Todd Vasos became CEO back in 2015. When he stepped down from the role in 2022, the absence of his leadership was almost immediately felt. So, in 2023 he returned as chief executive. Unsurprisingly, things appear to be humming again.

Vasos is almost certainly now grooming other potential replacements, while at the same time shaping the company into one that can perform once he inevitably steps down on a permanent basis. The fact that he's back and likely to be around a least for a while, however, may be reason enough alone to believe this stock's recent bullishness is a hint of what's to come.

It's just took some time for these and other factors to turn this retailer's business and its stock around.

It's not too late to buy Dollar General stock

But things are turning it around. The analyst community thinks so, anyway. Although they're expected to remain well below the pandemic-prompted windfall profits seen in 2020 and 2021, from here per-share earnings are expected to climb each and every year following last year's sizable lull.

Data source: StockAnalysis.com. Chart by author.

These same analysts aren't exactly bullish on the stock at its present price, for the record. Most of this crowd only rates Dollar General shares at a hold, while the consensus price target of $88.54 is actually a bit below where this ticker's currently trading. That doesn't exactly bolster the bullish argument.

This is one of those cases, however, where individual investors may have a better sense of what's actually happening with a company than the analyst community does, and is pricing the stock appropriately.

Bottom line? You might want to wait for a small dip before stepping into a new position. Don't get too stingy, though. Rather, take this persistent bullishness at face value. This stock's climbing a wall of worry thanks to several very real bullish tailwinds that can't be ignored much longer.

Should you invest $1,000 in Dollar General right now?

Before you buy stock in Dollar General, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Dollar General wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $594,046!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $680,390!*

Now, it’s worth noting Stock Advisor’s total average return is 872% — a market-crushing outperformance compared to 160% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of April 21, 2025

James Brumley has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Walmart. The Motley Fool recommends Five Below and Ollie's Bargain Outlet. The Motley Fool has a disclosure policy.