This Stock is Up 25% While the Market Crumbles. How?

Share prices of Dollar General (NYSE: DG) are up a little more than 25% so far in 2025. The S&P 500 index (SNPINDEX: ^GSPC), meanwhile, has fallen roughly 8%, after having dipped deep into correction territory at various points in the year. That's a 30-plus percentage point outperformance for the low-price retailer.

Let's look at why this difference makes total sense and why there's more than one tailwind for investors to consider when it comes to Dollar General stock.

What does Dollar General do?

As Dollar General's name suggests, it falls into the "dollar store" retail category. In reality, it doesn't charge that little for its wares, but it does specifically focus on offering products at low price points. This is a key part of the value proposition it offers its customers, with products ranging from consumer staple necessities (over 80% of sales) to clothing and more frivolous seasonal items (the remainder). It is something like a local convenience store but with a better selection.

Image source: Getty Images.

Being local is an important part of Dollar General's approach. While it has stores in more developed regions, its bread and butter is locating stores in areas that are underserved by larger retailers. The average population around one of the retailer's stores is a very modest 20,000 or so people. Thus, it provides both low prices and convenience. While customers might be able to get better deals on larger pack sizes at a big box store, the extra 30-minute drive that would require reduces the value of those savings. And, thus, a quick trip to Dollar General to pick up one or two items tends to win the day.

Dollar General is very large, with more than 20,000 locations. That gives it economies of scale when buying, which helps to support profit margins. But, even given the size of the company's store base, it believes it still has growth opportunities ahead. In 2025, the plan is to expand the store footprint by around 2%. That's modest, but it backs up against the fact that Dollar General's financial results have been a little weak of late.

Dollar General's model is resilient in downturns

Given this backdrop, it is pretty clear that Dollar General is likely to get through a recession in relative stride. It won't be immune to an economic pullback, but it is likely to muddle through better than many other retailers. This is a big reason behind the stock's strong outperformance in the face of the market's weakness. Indeed, the fear of a recession is running high today thanks to both economic trends and geopolitical issues.

But there are two more factors to consider. The first is pretty straightforward: Dollar General faces rising costs that have put pressure on its earnings and on some of its growth efforts. It is working to control costs and took a charge in the fourth quarter as it appears to be winding down a new store concept that didn't work out as well as planned. Even after the strong performance so far in 2025, the stock has lost more than half of its value since hitting a peak in 2022. To some extent, the rally this year is a bounce off the bottom for Dollar General's stock.

Data by YCharts.

The second is more subtle but no less important. The company's main competitor is Family Dollar, which is owned by Dollar Tree (NASDAQ: DLTR). Dollar Tree recently agreed to sell underperforming Family Dollar to a pair of private equity shops at a sizeable loss. Dollar Tree had already been closing Family Dollar locations, and the closures seem likely to continue, if not speed up, once the business is sold. This will mean less competition for Dollar General. The changes for Family Dollar could open up additional growth opportunities and reduce overall competition, both of which would be net positives for Dollar General over the near term.

Dollar General could climb some more

Given the deeply depressed stock price, Dollar General could have more room to rise. And that outcome probably wouldn't require material improvements in the business's performance, particularly if there is a recession. Modest financial improvement would probably be seen as impressive by shell-shocked investors. Add in the shifts in the competitive landscape, and it seems likely that Dollar General is worth a deep dive for investors worried about the economy and for investors who have a long investment horizon.

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Reuben Gregg Brewer 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.