Is There a Buying Opportunity in Dollar General?

Source: https://www.flickr.com/photos/nnecapa/

Source: https://www.flickr.com/photos/nnecapa/

Investors sold off shares of Dollar General (NYSE:DG) by over 7 percent on Friday as the company’s CEO Rick Dreiling announced that he would retire on May 30.

Investors are concerned that the stellar performance that the company has displayed over the past few years might be in jeopardy as the man at the helm will no longer be running the company. Investors are also concerned that an anticipated deal in which Dollar General would buy rival Family Dollar (NYSE:FDO) has a lower probability of taking place. Carl Icahn—infamous activist investor—bought Family Dollar shares with the intent of finding a buyer for the company, and who better to take over than that company’s largest competitor. If the company is dealing with a CEO succession it is less likely to take on the burden of integrating a large company.

Despite this weakness, and despite these concerns, the sell-off in Dollar General shares could present a buying opportunity.

Here’s why.

First there is no doubt that a CEO is integral to the success of a company, and Rick Dreiling has done an excellent job of creating shareholder value. Over the past several years the company has grown its income by over 40 percent, and since it went public in late 2009 the shares are up over 150 percent while the S&P 500 is up just 80 percent. But there is more to the success of a company than its CEO, and it is very difficult to believe that the company is instantly worth 7 percent less because its CEO is retiring.