The earnings from Dollar General were so horrible last week, Jim Cramer refuses to hold his nose and buy the dollar store stocks on weakness right now.
"The wholesale wrongness of the dollar store stocks going into this quarter is one of the greatest mispricings I have seen in ages. I know I had stopped flogging them going into last week. They had just run too much," the "Mad Money" host said.
The drastic drop in dollar store stocks last Thursday came so fast, many unsuspecting analysts were left confused. It made Cramer wonder if everyone who follows Dollar General simply didn't understand the changed landscape.
The shifting environment includes price competition from Wal-Mart, price deflation hitting all supermarkets, the 10 percent price reductions on average for 450 of Dollar General's best-selling items and the 500,000 people who lost federal food stamp eligibility.
"I would normally want to take an interest in a high-quality company like Dollar General after such a huge decline, but what this decline tells me is that we are dealing with a gigantic reset," Cramer said.
There are too many questions lingering for Cramer. Were more people than 500,000 affected by the cut in food stamps? How wrong is the price for Dollar General? And when did food deflation get so out control that any food retailer is now being crushed?
Cramer needs more information than what is available surrounding these topics. He also questioned the effect that the trading-up of these dollar stores could have. Historically, dollar stores are counter-cyclical, meaning they do well when economies do poorly. He wondered if Wal-Mart and Target have cut prices so low that they are capturing customers back.
So, if the issue was just food stamps, Wal-Mart or deflation, Cramer could price it into the stock.
But the combination of an improving economy, an aggressive Wal-Mart, diminished food-stamp eligibility and poor communication from Dollar Store's management told him to pass.
"Let these dollar stores go down to 90-cents on the dollar, then maybe we can think about taking a swing," Cramer said.