Dollar Tree Inc (DLTR, Financial) recently showed a daily gain of 0.61% and an impressive 3-month gain of 20.76%, with an Earnings Per Share (EPS) sitting at 5.27. Investors are keen to understand if these positive trends reflect the stock's true value or if Dollar Tree (DLTR) remains modestly undervalued. This valuation analysis will delve into the financials and market position of Dollar Tree to determine if the current stock price is a fair reflection of its intrinsic value.
Company Introduction
Dollar Tree Inc (DLTR, Financial) operates a vast network of discount stores across the United States and Canada, with a significant presence under both the Dollar Tree and Family Dollar banners. With a diverse product mix ranging from consumables to variety and seasonal items, Dollar Tree has strategically positioned its stores to cater to suburban markets, while Family Dollar focuses on urban and suburban locations. The current stock price of $134.41 and a market cap of $29.30 billion suggest that Dollar Tree might be trading below its estimated fair value, as determined by the GF Value of $155.21. This initial comparison sets the stage for a comprehensive analysis of Dollar Tree's intrinsic value.
Summarize GF Value
The GF Value is a proprietary calculation used to estimate the intrinsic value of a stock, incorporating historical trading multiples, a GuruFocus adjustment factor for past performance, and future business prospects. If a stock's price lies significantly above this line, it may be overvalued, indicating potential poor future returns. Conversely, a price well below the GF Value Line suggests the stock could be undervalued, with the possibility of higher future returns. Based on these metrics, Dollar Tree (DLTR, Financial) is currently modestly undervalued, implying a favorable long-term return potential relative to its business growth.
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Financial Strength
Assessing a company's financial strength is crucial to mitigate the risk of permanent capital loss. Dollar Tree's cash-to-debt ratio of 0.04 ranks it lower than the majority of its peers in the Retail - Defensive industry. Despite this, the overall financial strength of Dollar Tree is deemed fair, with a score of 6 out of 10. This assessment is vital for investors considering the long-term viability and creditworthiness of the company.
Profitability and Growth
Consistent profitability is a sign of a lower-risk investment. Dollar Tree has maintained profitability for 9 out of the past 10 years, with a solid operating margin that outperforms many competitors. The company's profitability rank of 7 out of 10 reflects its fair performance in this regard. When it comes to growth, Dollar Tree's revenue and EBITDA growth rates are commendable, surpassing a significant portion of the industry, which could signal an increase in shareholder value over time.
ROIC vs WACC
An effective measure of a company's profitability is the comparison of its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Dollar Tree's ROIC of 5.99 is currently below its WACC of 6.64, suggesting that the company may not be generating adequate returns relative to its capital costs. This comparison is a critical indicator of value creation for shareholders and the overall financial health of the company.
Conclusion
In conclusion, Dollar Tree (DLTR, Financial) presents itself as modestly undervalued with fair financial condition and profitability. The company's growth metrics are strong, indicating potential for future value creation. Investors interested in a deeper understanding of Dollar Tree's financials are encouraged to explore the company's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
