Step 4: Check the company's financial health. Before investing in a company, you want to make sure it's in good financial shape. A quick way to check is to look at where it falls on the USA TODAY Stock Meter, which ranks stocks from conservative (1) to aggressive (5). Family Dollar scores a relatively conservative 2.0 here. You can get a Stock Meter score for almost any stock by going to money.usatoday.com and putting the stock's ticker symbol or name into the Get a Quote box.
What's the bottom line? As you can see, the final call on this stock is tricky. It's a risky stock and you're probably not going to be compensated for the extra risk. For instance, if the stock follows the downdraft this year of its peers, you could be looking at a serious contraction. The sell-off in shares of 99 Cents Only Stores is a big warning to you.
Still, it's hard to argue that its overvalued looking at its business fundamentals. If consumers continue to save, Family Dollar could be a beneficiary. The final wildcard is the economy, for which no one has a good forecast.
Matt Krantz is a financial markets reporter at USA TODAY and author of Investing Online for Dummies. He answers a different reader question every weekday in his Ask Matt column at money.usatoday.com. To submit a question, e-mail Matt at firstname.lastname@example.org. Click here to see previous Ask Matt columns.