Skip to main content

Trend leader or value stock? Family Dollar continues its climb

I have had a recurring set of posts where I look at stocks that are strong enough to be on the Trade-Radar Trend Leaders list yet remain reasonably priced.

After running this weekend's Alert HQ process there was only one stock that met this criteria: Family Dollar Stores (FDO).

Background --

The profile from Yahoo! Finance is concise and descriptive enough: "Family Dollar Stores, Inc. operates a chain of self-service retail discount stores for low to lower-middle income consumers in the United States. The company offers consumables, including household chemicals, paper products, candy, snacks and other food, health and beauty aids, hardware and automotive supplies, pet food, and supplies; and home products, which comprise domestics, housewares, giftware, and home decor. It also provides apparel and accessories, including men's and women's clothing, boys' and girls' clothing, infants' clothing, shoes, and fashion accessories; and seasonal and electronics, such as toys, stationery and school supplies, seasonal goods, and personal electronics. As of February 3, 2010, it operated approximately 6,600 stores in 44 states and the District of Columbia."

Family Dollar sells most of its merchandise for $10 and less and typically draws shoppers with household incomes of $40,000 or less.

Financials --

I mentioned above that the company is still reasonably priced despite the run-up in its stock.Some the measures that show the company is in value territory:
  • Price-to-Sales ratio of 0.72 less than 1 is in value stock range
  • Price-to-Book ratio less than 4 is in reasonable value range
  • PEG ratio is 1.17 which is borderline
  • Debt-to-Equity ratio is extremely low
  • Enterprise multiple (Enterprise Value to EBITDA ratio) is less than 8 which is in value territory
  • Return on Assets and Return on Equity are both strong and, taken together, show superior management effectiveness
  • Year-over-Year Revenue growth is less that 5% which is nothing to write home about but Year-over-Year Earnings growth of 33.4% is excellent
  • The Trade-Radar Annualized Cash Flow Yield calculation comes out to almost 20% which very good, indeed
  • The company pays a dividend and, as a matter of act, just increased it.
Below we present the chart of Revenue, operating income and operating margin. Not only do we see increases in these financial measures year-over-year but on a quarterly sequential basis, as well.


Charts --

Since this stock is on the Trade-Radar Trend Leaders list, the following chart shows some of the trending indicators that we track: Aroon, DMI and MACD.


The trending indicators are all still positive though looking a bit tired. What is amazing, however, is that despite the general stock market dropping roughly 10%, this stock has just continued its march upward. So it hardly seems to be much of a negative to see the trending indicator loose a little a strength given how this stock has outperformed the market over the last few weeks.

The outlook --

JP Morgan upgraded Family Dollar to "overweight" from "neutral," saying the discount chain operator's efforts like longer store hours, space reallignment and more advertising are going to help it drive sales in the future.

With Walmart struggling to show earnings gains lately, there are those who expected Family Dollar to also show weakness. The opposite seems to be happening. As JP Mortgan says: ""Over the past few months, the 'stickiness' of dollar stores has been above our expectations as shoppers have elevated the importance of convenience to their retail destination decision."

As consumers who only discovered Family Dollar during the economic downturn realize that stores like this offer good prices, convenience and even preferred brands, they may have a hard time changing their new found habits of visiting the store even as the economy begins to improve. And given how slowly jobs seem to be coming back, there are plenty of customers who will continue to patronize the stores because a bargain is a  bargain and when money is tight, price counts.

Disclosure: no positions

Comments

Popular posts from this blog

Unlock Stock Market Profits - Key #1

This is the first in an ongoing series of articles where I discuss what I feel are keys to successful investing. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. (Click here to read the original post)

There are two basic steps to investing. First, you need to find stocks that seem to have some potential. Then you have to determine whether these stocks are actually good investments. There are many stocks that at first glance look interesting, but further research reveals that there are too many negatives to warrant taking a position.

This first post in the series starts at the beginning: getting good investment ideas.

Key #1: If something special is happening to a stock, it will be reflected in some kind of unusual activity in the markets.

As individual investors, we will never be the first to know; however, unusual activity can be an early sign that allows us to follow the Wall Street professionals and …

Unlock Stock Market Profits - Key #4

This is the fourth article in a series of posts describing 10 tools to help you identify and evaluate good investing ideas. It is based on a post that provides a summary of the ten keys that individual investors should use to identify profitable stock trades. (Click here to read the original post)

With this fourth post, we will continue another step along the path of finding stocks that seem to have some potential. The first post in the series discussed how to use unusual activity to identify investing ideas. The second post described how to use stock screeners. The third post described how to use lists of new highs and new lows. This post will focus on identifying social or business trends in order to find investing ideas.

Information on new trends might turn up anywhere. In conversation with friends or business associates, in newspapers or magazines, on TV or though your work. The key is to be aware of trends and how they start, stop or change. We'll start by describing what to lo…

Free stock alerts, Trend Leaders, Bollinger Band Breakouts and Cash Flow Kings for Jan 16, 2009

This post is to announce that the latest list of free stock alerts is up and available at Alert HQ. Each week we scan over 7400 stocks and ETFs looking for fresh BUY and SELL signals. We apply a combination of proprietary and standard technical analysis techniques to identify those stocks that are beginning to move. Our goal is to identify stocks or ETFs that are undergoing reversals, either to the upside or to the downside.

Wait, there's more...

We also use the Alert HQ process to generate more free lists of stocks and ETFs

The first byproduct of the Alert HQ process is the Trend Leaders list, our collection of stocks in strong up-trends. These stocks are registering strong signals using Aroon analysis, DMI and MACD. They are also above their 50-day exponential moving average. This week's list is now available at the TradeRadar site on the Trend Leaders page.

As another byproduct of the Alert HQ process we have generated a list of stocks that have broken either above their upper…