Title: Bargain Deals on Stocks: Unseen Cheapness in Over 4 Years
If you're hunting for extreme bargains in the market, you might want to delve deeper than just searching for stocks trading near their 52-week lows. To uncover deeply discounted investment opportunities, take a closer look at stocks that are at multiyear lows. These stocks often face multiple challenges, but for the contrarian investor wagering on a turnaround, the potential upside can be substantial.
Two retail stocks currently underperforming the markets are Dollar General (DG, -0.36%) and Kohl's Corporation (KSS, 1.41%). As of Monday's close, their share prices have dropped by more than 40% since the beginning of the year, and they haven't traded this low for several years. So, are they worth adding to your portfolio?
Dollar General
Dollar General's shares haven't been this cheap since 2017. Its business boomed during the early stages of the pandemic as consumers spent aggressively and the economy looked robust. However, things have drastically changed for discount retailers due to inflation impacting their core customers.
The company has managed to expand its operations, but this growth is primarily driven by opening new locations, with same-store sales often in low single digits. Dollar General has faced negative press over its working conditions, with some stores even posing safety hazards for employees. When coupled with slowing revenue growth, investors have grown skeptical, leading many to steer clear of the stock.
Despite the challenges, Dollar General is still profitable and trades at a modest forward price-to-earnings (P/E) multiple of 12, based on analyst estimates of next year's earnings. While the compensation for the risk may not be deep enough, it's worth considering the company's potential upside. As interest rates decrease, reducing consumer costs, discretionary income may increase, leading to more spending at Dollar General's stores. Furthermore, the company has over 20,000 stores, allowing it to close underperforming locations to boost profitability should it need to.
Is Dollar General worth the risk for investors? Although there are challenges, the company still serves a vital need for customers. Its stores offer a wide range of products, and its ability to adapt makes it a potentially viable investment, especially at lower share prices.
Kohl's Corporation
Kohl's has been reporting disappointing results, with both sales and profits declining significantly. Update: As of recent events, Kohl's reported sales of $3.5 billion for the period ending Nov. 2, a decrease of 8.8% compared to the previous year. The company reported net income of $22 million, a notable drop from the $59 million in profit it reported in the prior-year period.
The stock has plummeted to levels unseen since the early days of the pandemic in 2020 when the markets as a whole took a tumble. Investors can purchase Kohl's shares at an even more substantial discount than Dollar General, with a forward P/E of 7. It also trades at just under half its book value.
However, the risk associated with Kohl's is higher than with Dollar General due to its perception as a more discretionary purchase stock. Its recent struggles and the absence of a clear turnaround strategy bring a degree of uncertainty for investors.
Management has indicated that they are taking aggressive steps to improve the company, and a new CEO, Ashley Buchanan, will take over next month. This change may signal a shift in direction for Kohl's.
In conclusion, deep discounts can offer compelling investment opportunities, especially in retail stocks like Dollar General and Kohl's that have seen multiyear lows. However, investors should carefully consider each stock's unique risks and potential upsides before making a decision.
After considering Dollar General's challenges, such as slower revenue growth and negative press about working conditions, some investors might still see value in its low share price and modest forward P/E ratio, given its potential to adapt and its large number of stores.
Investors might be drawn to Kohl's Corporation due to its shares trading at an even more substantial discount than Dollar General, with a forward P/E of 7 and just under half its book value. The appointment of a new CEO, Ashley Buchanan, also signals a potential shift in direction for the company. However, the significant decline in sales and profits, along with the uncertainty about a clear turnaround strategy, increase the risk associated with investing in Kohl's.