Dollar General Corporation (NYSE:DG) shares are up more than 5.57% this year and recently increased 3.60% or $3.41 to settle at $98.19. Dollar Tree, Inc. (NASDAQ:DLTR), on the other hand, is up 3.76% year to date as of 01/11/2018. It currently trades at $111.35 and has returned 2.29% during the past week.

Dollar General Corporation (NYSE:DG) and Dollar Tree, Inc. (NASDAQ:DLTR) are the two most active stocks in the Discount, Variety Stores industry based on today’s trading volumes. Investors are clearly interested in the two names, but is one a better choice than the other? We will compare the two companies across growth, profitability, risk, valuation, and insider trends to answer this question.

**Growth**

The ability to grow earnings at a compound rate over time is a crucial determinant of investment value. Analysts expect DG to grow earnings at a 7.35% annual rate over the next 5 years. Comparatively, DLTR is expected to grow at a 13.48% annual rate. All else equal, DLTR’s higher growth rate would imply a greater potential for capital appreciation.

**Profitability and Returns**

A high growth rate isn’t necessarily valuable to investors. In fact, companies that overinvest in low return projects just to achieve a high growth rate can actually destroy shareholder value. Profitability and returns are a measure of the quality of a company’s business and its growth opportunities. We’ll use EBITDA margin and Return on Investment (ROI) to measure this., compared to an EBITDA margin of 11.42% for Dollar Tree, Inc. (DLTR). DG’s ROI is 15.70% while DLTR has a ROI of 10.70%. The interpretation is that DG’s business generates a higher return on investment than DLTR’s.

**Cash Flow **

The value of a stock is simply the present value of its future free cash flows. DG’s free cash flow (“FCF”) per share for the trailing twelve months was +0.41. Comparatively, DLTR’s free cash flow per share was -1.10. On a percent-of-sales basis, DG’s free cash flow was 0.51% while DLTR converted -1.26% of its revenues into cash flow. This means that, for a given level of sales, DG is able to generate more free cash flow for investors.

**Liquidity and Financial Risk**

Liquidity and leverage ratios provide insight into the financial health of a company, and allow investors to determine the likelihood that the company will be able to continue operating as a going concern. DG has a current ratio of 1.40 compared to 1.90 for DLTR. This means that DLTR can more easily cover its most immediate liabilities over the next twelve months. DG’s debt-to-equity ratio is 0.54 versus a D/E of 0.95 for DLTR. DLTR is therefore the more solvent of the two companies, and has lower financial risk.

**Valuation**

DG trades at a forward P/E of 18.89, a P/B of 4.66, and a P/S of 1.15, compared to a forward P/E of 20.45, a P/B of 4.31, and a P/S of 1.20 for DLTR. Given that earnings are what matter most to investors, analysts tend to place a greater weight on the P/E.

**Analyst Price Targets and Opinions**

Investors often compare a stock’s current price to an analyst price target to get a sense of the potential upside within the next year. DG is currently priced at a 0.43% to its one-year price target of 97.77. Comparatively, DLTR is 2.8% relative to its price target of 108.32. This suggests that DG is the better investment over the next year.

The average investment recommendation on a scale of 1 to 5 (1 being a strong buy, 3 a hold, and 5 a sell) is 2.30 for DG and 2.10 for DLTR, which implies that analysts are more bullish on the outlook for DG.

**Risk and Volatility**

Beta is an important measure that gives investors a sense of the market risk associated with a particular stock. A beta above 1 signals above average market risk, while a beta below 1 implies below average volatility. DG has a beta of 0.95 and DLTR’s beta is 0.67. DLTR’s shares are therefore the less volatile of the two stocks.

**Insider Activity and Investor Sentiment**

Comparing the number of shares sold short to the float is a method analysts often use to get a reading on investor sentiment. DG has a short ratio of 2.92 compared to a short interest of 2.40 for DLTR. This implies that the market is currently less bearish on the outlook for DLTR.

**Summary**

Dollar Tree, Inc. (NASDAQ:DLTR) beats Dollar General Corporation (NYSE:DG) on a total of 7 of the 14 factors compared between the two stocks. DLTR generates a higher return on investment, is more profitable and higher liquidity. Finally, DLTR has better sentiment signals based on short interest.