Why Dollar General's Recent Surge Makes It a Recessive-Ready Buy

The U.S. economy is teetering on the edge of a potential slowdown, with inflation pressures, trade tensions, and geopolitical risks clouding the outlook. Yet amid this uncertainty, one company is proving its resilience: Dollar General (DG). Its first-quarter 2025 results, which showed 5.3% revenue growth to $10.4 billion and an 7.9% jump in net income to $391.9 million, underscore its ability to thrive even as consumer spending habits shift. For investors seeking stability in volatile markets, Dollar General's combination of defensive positioning, margin improvements, and favorable valuation metrics makes it a compelling “recessive-ready” buy.

Earnings Resilience: A Testament to Operational Strength

Dollar General's Q1 performance was driven by disciplined execution across its core strategies. Same-store sales rose 2.4%, with average transaction amounts increasing 2.7%—a sign that customers are prioritizing affordability while still spending on essentials. This growth spanned categories like consumables ($8.64 billion in sales), seasonal items, and home products, reflecting the company's success in meeting demand for everyday goods.

The real standout was margin improvement. Gross profit margins expanded to 31.0%, up 78 basis points year-over-year, thanks to reduced shrinkage and better inventory management. Even as SG&A expenses rose to 25.4% of sales (due to higher labor and maintenance costs), operating profit still increased 5.5%, demonstrating cost discipline. Management's focus on store renovations (Project Elevate/Renovate) and inventory optimization is paying off, with cash flow from operations surging 27.6% to $847.2 million.

A backtest of buying DG shares on earnings announcement dates and holding for 30 days from 2020 to 2025 showed an 11.67% return, though with a maximum drawdown of -41.18%, underscoring the need for risk management in volatile markets. While the strategy underperformed broader market benchmarks, it aligns with DG's defensive profile—delivering modest gains during periods of economic uncertainty while preserving capital.

Valuation: A Bargain Amid Rising Risks

At a current EV/EBITDA ratio of 10.88 (vs. a 5-year average of 11.08), Dollar General trades at a slight discount to its long-term valuation norms. This multiple is also meaningfully below the industry median of 19.09 for discount retailers, suggesting the market underappreciates its defensive profile.

Analysts have taken notice. Raymond James and UBS recently upgraded their price targets to $125 and $128, respectively, citing robust same-store sales and margin tailwinds. The stock's P/E ratio of 18.69 is reasonable given its 7.9% EPS growth and the potential for further margin expansion. While some worry about rising labor costs or supply chain disruptions, Dollar General's 2025 guidance—revised upward for sales and EPS—reflects confidence in its ability to navigate these challenges.

Risk-Adjusted Outperformance vs. High-Yield Alternatives

Investors seeking income might be tempted by high-yield alternatives like the MSTY ETF (Yieldmax MSTR Option Income Strategy), which offers a staggering 136.57% annualized yield tied to Bitcoin and Treasury bills. But MSTY's returns come with extreme volatility and dependency on crypto markets, which are prone to sharp corrections. Dollar General, by contrast, offers a safer, more predictable dividend of $0.59 per share—yielding 0.5%—along with a fortress balance sheet (debt-to-equity of 0.78) and consistent cash flow.

The comparison is stark: MSTY's monthly distributions have already fallen 38% month-over-month in 2025, while Dollar General's dividend has grown steadily for years. For conservative investors, DG's stability trumps the lottery-like prospects of MSTY.

The Case for Immediate Investment

Dollar General's strategic advantages are clear. Its 15,000+ stores serve price-sensitive consumers in rural and urban areas, a demographic less likely to cut back on essentials during a downturn. The company's focus on store renovations (2,250 Project Elevate stores and 2,000 Project Renovate stores planned this year) will enhance customer experience and drive incremental sales. Meanwhile, its lower-cost inventory model and geographic diversification (including expansion into Mexico) position it to capitalize on shifting consumer preferences.

Critics may point to rising labor costs or the drag of higher markdowns, but these are industry-wide issues. Dollar General's ability to offset these pressures through operational efficiency—such as reducing shrinkage by 10% since 2020—gives it an edge.

Conclusion: A Defensive Gem for the Next Recession

In an era of economic uncertainty, Dollar General's Q1 results and valuation metrics make it a rare blend of growth and stability. While the stock has risen 50% year-to-date, its fundamentals justify further gains. With a P/E ratio below its five-year average and a dividend that offers ballast in volatile markets, DG is a top pick for investors preparing for a potential slowdown.

For those lured by the siren song of high-yield crypto-linked ETFs like MSTY, Dollar General's proven track record and defensive profile offer a saner alternative. In the next recession, companies that deliver everyday essentials at unbeatable prices will thrive—and Dollar General is already proving it can do just that.

Investment thesis: Buy DG for its defensive moat, margin upside, and reasonable valuation. Hold for the long term as a recession hedge.