Family Dollar Stores hasn't been making dollars for investors of late. The stock (symbol FDO) trades at about $25 -- down from $35 early last year. But Mark Giambrone, co-manager of Vanguard Selected Value fund, sees better times ahead.
A chain of 5,900 modestly sized retail stores, Family Dollar provides what Giambrone terms "mini-Wal-Marts" to residents of mainly lower- and lower-middle-class neighborhoods.
But those customers are spending less, which has pummeled Family Dollar's earnings and profit margins. "Their customers have been hurt the most by higher energy prices," Giambrone says. The company netted $1.31 per share in the fiscal year that ended last August -- down 22 cents from the previous year. Gross and net profit margins also declined. "Same-store sales growth slowed dramatically," Giambrone says, referring to stores open at least one year. That's largely because Family Dollar earns less on necessities than it does on non-necessities such as toys and T-shirts.
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
Why be upbeat? The basic business is sound, Giambrone says, and either energy prices will drop or consumers will become accustomed to higher prices. "It takes people time to adjust, but they generally do adjust -- and spend more again," he says.
On average, analysts surveyed by Thomson First Call estimate that Family Dollar will earn $1.35 per share in the fiscal year ending this August. But if Giambrone is right, the company could easily beat estimates. Using the $1.35 number, the stock trades at 18 times earnings. That's lower than the price-earnings ratio has been in nearly ten years. In short, says Giambrone, Family Dollar is a bargain.
--Steven Goldberg
-
Rally Fades on Mixed AI Revolution News: Stock Market TodayAll three main U.S. equity indexes opened higher but closed lower as a seven-session winning streak for the S&P 500 came to an end.
-
Stretch Your Holiday Shopping Budget Further with These Under-$50 Gifts That Don't Feel CheapAmazon October Prime Day is the perfect chance to nab some under-$50 gifts that feel more expensive than they are (because normally they would be).
-
If You'd Put $1,000 Into Bank of America Stock 20 Years Ago, Here's What You'd Have TodayBank of America stock has been a massive buy-and-hold bust.
-
If You'd Put $1,000 Into Oracle Stock 20 Years Ago, Here's What You'd Have TodayORCL Oracle stock has been an outstanding buy-and-hold bet for decades.
-
How to Invest for Rising Data Integrity RiskAmid a broad assault on venerable institutions, President Trump has targeted agencies responsible for data critical to markets. How should investors respond?
-
If You'd Put $1,000 Into Sherwin-Williams Stock 20 Years Ago, Here's What You'd Have TodaySherwin-Williams stock has clobbered the broader market by a wide margin for a long time.
-
If You'd Put $1,000 Into UnitedHealth Group Stock 20 Years Ago, Here's What You'd Have TodayUNH stock was a massive market beater for ages — until it wasn't.
-
What Tariffs Mean for Your Sector ExposureNew, higher and changing tariffs will ripple through the economy and into share prices for many quarters to come.
-
How to Invest for a Fall Interest Rate Cut by the FedA lot can happen between now and then, but the probability the Fed cuts interest rates in September is back above 80%.
-
Are Buffett and Berkshire About to Bail on Kraft Heinz Stock?Warren Buffett and Berkshire Hathaway own a lot of Kraft Heinz stock, so what happens when they decide to sell KHC?
