Why Dollar General Stock Tumbled on Tuesday

A recommendation downgrade from a veteran investment bank had a predictable effect on Dollar General (NYSE: DG) stock Tuesday. Investors put the company in the bargain bin by trading it down by more than 1% on the day. That didn't contrast well with the S&P 500's (SNPINDEX: ^GSPC) gain of over 1%.

The stock is not gold for Goldman

The institution behind the move was Goldman Sachs, whose analyst Kate McShane lowered her rating on Dollar General to neutral -- at a price target of $116 per share -- from her preceding buy.

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In her view, the budget retailer's recent share price appreciation has left it fairly priced, according to reports. At its current level, the company would have to substantially improve its fundamentals, and that isn't likely to happen, given the tough competitive environment in which it operates.

McShane also said Dollar General is limited by necessary investments into infrastructure and its supply chain.

That being said, she was complimentary about management's success in better positioning the company via the Back to Basics program. In her opinion, this has led to encouraging comparable-sales growth, and higher profit margins.

Heady gains

Dollar General's robust, year-to-date increase is striking -- even with the Tuesday slip, the stock has gained nearly 50%, against the S&P 500 index's less than 4% rise. Much of this is a play on a potential economic slowdown; particularly in the opening months of 2025, the market was worried about the detrimental effect of high tariffs on the economy. This is not such a concern anymore.

So I think the assessment that Dollar General doesn't have much (if any) upside is realistic. This isn't a stock I'd get very excited about just now.

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Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Goldman Sachs Group. The Motley Fool has a disclosure policy.