As a general merchandise discount retailer, Dollar General was among the handful of businesses that actually benefited from the pandemic. People piled on necessities preparing for what looked like the end of the world for a while.
As a result, sales at Dollar General surged in the midst of the crisis. While its stock price initially reflected the general panic, it quickly rebounded and is now at a new all-time high. In fact, the stock is up by nearly 53% from its mid-March bottom of $125 a share.
Can investors rely on the uptrend to continue or should they prepare for a reversal? The company’s EPS have been growing at 11% on average for the past five years. However, its P/E ratio stands at ~25 suggesting strong overvaluation. To back that conclusion up, let’s take a look at Dollar General from another angle.
The weekly chart above puts the stock’s rally since 2010 into Elliott Wave perspective. Investors have every reason to love Dollar General, as its stock price multiplied by almost ten in a little over 10 years. Unfortunately, no trend lasts forever.
Dollar General Bears to Show Up Soon?
The chart reveals a textbook five-wave impulse, labeled 1-2-3-4-5, where the five sub-waves of wave 1 are also visible. According to the theory, every impulse is followed by a three-wave correction in the opposite direction. If this count is correct, we can expect a notable decline to erase all of wave 5’s gains.
2020 is shaping up as another very strong year for Dollar General the company. As for DG the stock, the second half of the year might be disappointing. A bearish reversal followed by a decline to the $120 area seem to be lurking ahead.
Similar Elliott Wave setups occur in the Forex, crypto and commodity markets, as well. Our Elliott Wave Video Course can teach you how to uncover them yourself!