Advertisement
Markets

Family Dollar: On Sale

This discount chain's customers have been pinched by high energy prices. But one fund manager is confident that sales will eventually pick up -- and in the meantime, the stock looks like a bargain.

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.

Advertisement - Article continues below

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.

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.

Advertisement
Advertisement - Article continues below
Advertisement

Most Popular

65 Best Dividend Stocks You Can Count On
stocks

65 Best Dividend Stocks You Can Count On

These 65 Dividend Aristocrats are an elite group of dividend stocks that have reliably increased their annual payouts every year for at least a quarte…
July 8, 2020
8 Ways You Might Be Cheating on Your Taxes
taxes

8 Ways You Might Be Cheating on Your Taxes

Don't fall into these common traps that can get you in hot water with the IRS.
July 8, 2020
Find a Great Place to Retire
happy retirement

Find a Great Place to Retire

Our cities provide plenty of space to spread out without skimping on health care or other amenities.
July 2, 2020

Recommended

Closing Bell 7/10/20: Gilead Gives Stocks a Booster Shot
Markets

Closing Bell 7/10/20: Gilead Gives Stocks a Booster Shot

Stocks rallied out of negative territory Friday after Gilead announced that remdesivir helped reduce COVID-19 mortality risk in a clinical trial.
July 10, 2020
2020 Stock Market Holidays and Bond Market Holidays
Markets

2020 Stock Market Holidays and Bond Market Holidays

Is the market open today? Take a look at which holidays the stock markets and bond markets take off in 2020.
July 10, 2020
Closing Bell 7/9/20: Another Split Market as Jobs Concerns Grow
Markets

Closing Bell 7/9/20: Another Split Market as Jobs Concerns Grow

A mounting list of planned playoffs weighs on stocks Thursday, though Big Tech manages to hoist the Nasdaq up to another record high.
July 9, 2020
Closing Bell 7/8/20: Tech Stocks Lead Wall Street Forward Again
Markets

Closing Bell 7/8/20: Tech Stocks Lead Wall Street Forward Again

U.S coronavirus cases continue to spike, but Apple helped lead another Big Tech rally to drive the major indices higher Wednesday.
July 8, 2020