This Growth Stock Is Crushing the Market This Year

As of Monday's close, the S&P 500 was down by about 4% from where it started the year -- and that's after the markets bounced back considerably from their 2025 lows in recent weeks.

One stock, however, that has soundly outperformed the broad index this year is Dollar General (NYSE: DG). It's up more than 21%. The discount retailer has been a growth machine over the years, and opened its 20,000th location in 2024. Its significant presence across the country and its focus on low-cost goods have led many investors to see it as a promising opportunity of late.

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But what's been driving the share price rally? Is now really a good time to invest in Dollar General?

Image source: Getty Images.

Why is Dollar General stock doing so well in 2025?

One big reason for Dollar General's impressive gains in the early part of 2025 is that investors see it as a fairly safe stock to hold amid the growing risks related to tariffs. According to analysts' estimates, just 4% of Dollar General's purchases are imported goods. Rival Dollar Tree has much more exposure to tariffs, and its stock has experienced a more modest increase of 12% this year.

Another condition supporting Dollar General's rise, however, could simply be that the stock was beaten down previously. Last year, Dollar General's stock lost 44% of its value, and the year before that, it fell by 45%. After such a sharp sell-off over two consecutive years, some bargain hunters may have been loading up on the stock as it was trading in the neighborhood of its seven-year low.

Even after its gains this year, it's still below $100 -- nowhere near the high of over $260 that it hit in 2022.

The company may not be out of the woods just yet

Before you decide to pile your own money into Dollar General's rally, consider that while its direct exposure to tariff risks may not be high, there are still other problems to worry about, too. First and foremost, its core customer base is struggling, and Dollar General management has mentioned this on multiple occasions. Most recently, in March, CEO Todd Vasos said that many of the chain's customers "only have enough money for basic essentials."

Now, consider that Dollar General's core customer is already feeling the pinch, and the U.S. economy has yet to come close to feeling the full effects of tariffs, which could include layoffs, rising unemployment, and a wide-scale reduction of spending across the board as consumers tighten their belts.

For its current fiscal year, which ends in January 2026, Dollar General has guided for same-store sales growth of between 1.2% and 2.2%. But I wouldn't be surprised by a downward adjustment to that if economic conditions worsen as the year progresses.

Investors should tread carefully

Despite Dollar General stock's encouraging start to 2025, I wouldn't hop on the bandwagon just yet. The business may struggle less than some of its peers, but it may still not perform all that well. If its core customer is already only buying essentials, and tougher times appear to be ahead, it's not hard to imagine a scenario in which Dollar General performs worse than expected and the stock gives back some of its early gains.

The stock trades at 18 times its trailing earnings, which is light in comparison to the S&P 500 average of 23, but there's good reason for that -- Dollar General's business has been sluggish in recent years and there hasn't been much of a reason to be optimistic. It should be trading at a discount.

While Dollar General may not be as vulnerable to tariffs as other companies, I don't see that as a good enough reason to buy shares. There are far better growth stocks out there to add to your portfolio.

Should you invest $1,000 in Dollar General right now?

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David Jagielski has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.