A Few Ways to Play Dollar General Stock

DG could be a target of options traders

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It's been two weeks since Dollar General Corporation (NYSE:DG) skidded out after earnings. After the flurry of bear notes, has the discount retailer fared any better in September?

The short answer is yes. DG has reclaimed its year-to-date breakeven level, and is facing off with its +10% year-to-date area. Still, Dollar General stock's valuation remains rich at a forward price-earnings ratio of 21.14 and a price-sales ratio of 1.58.

Nonetheless, the retailer maintains decent growth estimates, with analysts on average predicting 10.7% revenue growth and 13.6% earnings growth for fiscal 2023. Moreover, DG is expected to generate a 5.8% increase in revenue and a 9.5% increase in earnings for fiscal 2024, further helping to justify Dollar General stock’s high valuation metrics. In addition, Dollar General offers a 0.91% dividend yield at a forward dividend of $2.20. In general, DG is a viable option for long-term investors due to its relatively low volatility and the company’s safe business model.

Options traders are betting bullishly. At the International Securities Exchange (ISE), Cboe Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), the equity sports a 10-day put/call volume ratio of 1.58 that stands higher than 81% of readings from the last year.

Those looking at options are in luck, as Dollar General stock sports affordable premium at the moment. This is per the equity's Schaeffer's Volatility Index (SVI) of 24%, which stands in the relatively low 20th percentile of readings from the last 12 months, implying options traders are pricing in lower-than-usual volatility expectations. What's more, its Schaeffer's Volatility Scorecard (SVS) tally of 79 out of 100 suggests the equity tends to outperform said volatility expectations.


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