Retailers are adapting their business models as technology changes how people shop. Still, demand can be volatile as the industry is exposed to the ups and downs of consumer spending. This has stirred some uncertainty lately as retail stocks have tumbled by 15.8% over the past six months. This performance was particularly disheartening since the S&P 500 held steady.

Only some companies are subject to these dynamics, however, and a handful of high-quality businesses can deliver earnings growth in any environment. With that said, here is one consumer stock poised to generate sustainable market-beating returns and two we’re swiping left on.

Two Consumer Retail Stocks to Sell:

Dollar General (DG)

Market Cap: $17.38 billion

Appealing to the budget-conscious consumer, Dollar General (NYSE: DG) is a discount retailer that sells a wide range of household essentials, groceries, apparel/beauty products, and seasonal merchandise.

Why Is DG Not Exciting?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
2. Widely-available products (and therefore stiff competition) result in an inferior gross margin of 29.9% that must be offset through higher volumes
3. High net-debt-to-EBITDA ratio of 6× could force the company to raise capital at unfavorable terms if market conditions deteriorate

Dollar General’s stock price of $79 implies a valuation ratio of 13.5x forward price-to-earnings. If you’re considering DG for your portfolio, see our FREE research report to learn more.

Grocery Outlet (GO)

Market Cap: $1.17 billion

Due to its differentiated procurement and buying approach, Grocery Outlet (NASDAQ: GO) is a discount grocery store chain that offers substantial discounts on name-brand products.

Why Does GO Give Us Pause?

1. Already-low operating margin of 2.4% fell over the last year, and the smaller profit dollars make it harder to react to unexpected market developments
2. Below-average returns on capital indicate management struggled to find compelling investment opportunities
3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

Grocery Outlet is trading at $12.01 per share, or 12.9x forward price-to-earnings. Read our free research report to see why you should think twice about including GO in your portfolio.

One Consumer Retail Stock to Watch:

Ross Stores (ROST)

Market Cap: $40.98 billion

Selling excess inventory or overstocked items from other retailers, Ross Stores (NASDAQ: ROST) is an off-price concept that sells apparel and other goods at prices much lower than department stores.

Why Are We Fans of ROST?

1. Rapid rollout of new stores to capitalize on market opportunities makes sense given its strong same-store sales performance
2. Same-store sales growth averaged 3.6% over the past two years, showing it’s bringing new and repeat shoppers into its stores
3. Strong free cash flow margin of 8.2% enables it to reinvest or return capital consistently

At $124.40 per share, Ross Stores trades at 18.5x forward price-to-earnings. Is now a good time to buy? Find out in our full research report, it’s free.

Stocks We Like Even More

With rates dropping, inflation stabilizing, and the elections in the rearview mirror, all signs point to the start of a new bull run - and we’re laser-focused on finding the best stocks for this upcoming cycle.

Put yourself in the driver’s seat by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.