Is Dollar General turnaround on track and should you own the stock in 2026?

Dollar General's earnings rebound has been genuine, with earnings per share (EPS) soaring 35.4% from $5.11 during the FY2025 low to $6.85 in FY2026. Gross margins have also improved, climbing from 29.6% to 30.7%. The stock price of $119.60 is currently 16.6% lower than its fair value of $139.39, with a price-to-earnings (P/E) ratio of just 16.9x.

Analysts have shown confidence in the company, with 19 of them revising upward their estimates for the coming period, with the consensus EPS for FY2026 now ranging between $6.66 and $6.80.

Despite the positive trajectory, the turnaround has been more of a directionally correct movement rather than a consistent one. Net margins have declined to 3.5%, less than half of the 7.0% peak seen in FY2022. The turnaround's speed is described as "directionally correct" rather than consistently steady, with gross margins recovering 110 basis points but still 90 basis points below the levels seen in FY2022. The buyback program is currently on hold due to the company's high debt-to-equity ratio of 178.6%.

The company's free cash flow (FCF) yield is notable at 8.3%, showcasing its ability to generate cash. Nonetheless, if management can reduce its debt levels even slightly, they can potentially initiate buybacks, which would add a meaningful catalyst to the stock. The dividend yield currently stands at 3.9%, providing a floor for investors.

Additionally, the company's share price has seen an 8.3% FCF yield, indicating its capacity to generate cash. However, the stock's daily chart signals a "Strong Sell" with an RSI of 44.6, and it is trading below all key moving averages. The price has also decreased by 10% so far this year.

The weekly chart presents a more optimistic outlook, with a "Strong Buy" signal on the MACD/stochastic indicators. This suggests that the intermediate trend may be stabilizing after a recent correction from the 52-week high of $158. Overall, the turnaround at Dollar General appears to be on track, but it remains unproven. The progress in EPS recovery and margin stabilization is promising, and the macroeconomic environment for value retail appears to be beneficial.

However, the high leverage at 178.6% and the persistently low net margins compared to their peak levels cast some doubt on the consistency investors have come to expect.