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Author: brentvoss One star, 50 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 1001  
Subject: DG contrarian view Date: 8/23/2006 9:58 PM
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Greetings DG Fools (all three of us):)

Well folks, if you would only look at what this stock has done in the last 6-12 months, it would be reasonable to guess that DG is well on its way to becoming worthless.

Good or bad, for better for worse, I'm a big believer in this company, what it stand for, and it's attractive valuation. DG only has to grow its earnings around 4% annually for the next 10 years to justify it's current price. And that's using a 15% discount rate.
I believe their long-term earnings growth will be somewhere between 8 and 12%.
This is a simple, well-run business that has low debt, high ROIC and significant FCF while growing their store base at a 10% CAGR the last 5 years with plans to continue doing so.
It is also a mid-cap with significant growth possibilities in expanding their niche underserved rural and urban markets westward and beyond.
Retail, with Dollar stores in particular is a TOUGH business, with relentless competition from various sources. I am impressed with DG's growth while maintaining a high ROIC/ROA number in the face of stiff and varied competition.
I live in a rural NW Kansas town and some locals say that Dollar General saved our town. It helped keep sales tax local, created jobs and made life in our town more convenient and affordable. Our local store has been here since 1998 and is still posting 10-15% sales growth. The closest Supercenter is a 60 mile drive. Sure, Supercenters are better stores, but when folks are under budget and time constraints (who isn't out here?) DG shines in the rural, underserved markets.

Brent



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