In the category of profitability DG performs with its peers with respect to gross margins, but outperforms in the category of operating margins; here DG is better than 83% of its peers. This relates to the ability of DG to control its expenses. On a related note, management effectiveness with respect to ROE (return on equity) is also impressive. DG is able to reinvest its earnings very efficiently. DG has a higher ROE than 82% of its peer group. This makes DG more attractive to investors when compared to its peers. Management is a key variable for DG, especially given the fact that the company has chosen to increase its long-term debt by 11% since Q3 2012.
Another metric to look at is DG’s PEG ratio. A PEG ratio puts forward EPS and growth into prospective. PEG ratios under one are generally accepted to be attractive and the opposite for over one. This ratio is highly a function of and dependent on forward estimates, which can be a weakness, but is still an interesting metric. Wall Street is expecting EPS to grow at 18.5%. Taking DG’s forward PE of 14.8x and dividing it by 18.5 (which represents 18.5% EPS growth) yields a PEG ratio of 0.8x. This means that forward earnings may be ‘cheap’ with respect to growth expectations. It is also interesting to note that the average PEG ratio in DG’s peer group is 1.14.