Dollar General vs. Five Below: Which Stock Will Be the Better Rebound Candidate in 2025?

As the retail sector continues to evolve, two discount retailers, Dollar General (DG) and Five Below (FIVE), have faced significant challenges in recent years. Both stocks have lost more than 40% of their value over the past 12 months, but which one has the better rebound potential in 2025? Let's compare their business models, growth rates, and valuations to decide.

Dollar General: A Tale of Two Halves

Dollar General once sold all of its products for $1, but inflation and higher tariffs on overseas goods made it impossible to maintain those low prices for all of their products. Now, about 20% of its products are sold for $1, with the rest at higher prices. The company mainly sells housewares, cleaning supplies, packaged food, health and beauty products, basic apparel, and other essential goods. It also opens more stores in underserved rural areas than its top competitor Dollar Tree.

From fiscal 2018 to fiscal 2023, Dollar General's net sales grew at a compound annual growth rate (CAGR) of 9% as its year-end store count grew from 15,370 to 19,986 locations. Its earnings per share (EPS) grew at a CAGR of 5% during the same period. However, for fiscal 2024, the company expects its EPS to decline 22% to 27% due to hurricane-related expenses and inflationary pressure. Despite these setbacks, Dollar General plans to expand its footprint with 730 new store openings, 1,620 remodels, and 85 store relocations for the full year.

Five Below: A New CEO and a Fresh Start

Five Below once kept its prices under $5, but it started raising prices to the "Five Beyond" ($5 to $10) range five years ago. The company sells a broader range of products geared toward younger shoppers, including toys, fashion accessories, bath and body products, candy and beverages, room decor, smartphone accessories, stationery, novelty and gag items, and other less essential products. Its stores are spread out across urban, suburban, and semi-rural areas.

From fiscal 2018 to fiscal 2023, Five Below's net sales grew at a CAGR of 18% as it doubled its year-end store count from 750 to 1,544 locations. Its EPS grew at a CAGR of 15% during the same period. However, for fiscal 2024, the company expects its same-store sales to dip 3% as it deals with inflationary pressure on its product prices and wages. Five Below also just hired Forever 21's former CEO Winnie Park as its new CEO in early December, but it's unclear if this new leader can stabilize its business in this shaky market.

Which Stock Has the Better Rebound Potential?

Dollar General trades at just 12 times forward earnings and pays an attractive forward dividend yield of 3%. That low valuation and high yield should limit its downside potential, but the bulls might shun its stock until it fully resolves its employee safety issues, laps its hurricane-driven expenses, and proves that it can keep growing its earnings even if the incoming Trump administration drastically raises tariffs.

Five Below looks pricier at 22 times forward earnings and doesn't pay a dividend, but it's growing faster and isn't bogged down in employee safety problems. It also faces tariff-related threats, but its focus on younger shoppers might help it grow faster than Dollar General and more diversified discount retailers. So for now, I think Five Below is a better buy than Dollar General -- but both stocks could stay in the penalty box until the market gains some momentum.



In conclusion, both Dollar General and Five Below have faced significant challenges in recent years, but Five Below's faster growth rate and focus on younger shoppers may give it an edge over Dollar General in the long run. Investors should closely monitor each company's progress in addressing these challenges and consider their respective valuations and dividend yields when making investment decisions.