Dollar Tree Inc (DLTR, Financial) has exhibited a notable daily gain of 2.53% and an impressive three-month gain of 31.65%, reflecting a positive trend in its market performance. With an Earnings Per Share (EPS) of 5.27, investors are keen to understand if the stock is currently undervalued. This article delves into Dollar Tree's valuation, providing an analysis of whether its current market price reflects its true value. Read on for an in-depth valuation analysis of Dollar Tree (DLTR).
Dollar Tree operates a vast network of discount stores across North America, with a significant presence under both the Dollar Tree and Family Dollar banners. The company's sales composition is diverse, with consumables, variety items, and seasonal products contributing to its revenue streams. The comparison of Dollar Tree's stock price to the GF Value—an estimate of the stock's fair value—offers a foundational perspective for evaluating the company's current valuation.
Understanding the GF Value of Dollar Tree (DLTR, Financial)
The GF Value is a proprietary measure that determines the intrinsic value of a stock based on historical trading multiples, an adjustment factor reflecting past performance, and future business prospects. According to this measure, Dollar Tree (DLTR) is currently modestly undervalued. The GF Value suggests a fair trading value for the stock, which serves as a benchmark for investors. A stock price significantly above the GF Value Line may indicate overvaluation, while a price below may suggest undervaluation.
At its current price of $140.01, with a market capitalization of $30.50 billion, Dollar Tree appears modestly undervalued. This valuation implies that the long-term return on Dollar Tree's stock could potentially outpace its business growth, offering an attractive opportunity for investors.
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Financial Strength of Dollar Tree
Investing in a company with robust financial strength mitigates the risk of capital loss. Dollar Tree's financial strength can be assessed by examining metrics such as the cash-to-debt ratio and interest coverage. Despite a cash-to-debt ratio of 0.04 that underperforms 91.18% of its industry peers, Dollar Tree's overall financial strength is rated as fair, with a score of 6 out of 10.
Profitability and Growth Prospects of Dollar Tree
Consistent profitability is a key indicator of a company's investment potential. Dollar Tree has maintained profitability over the last decade, boasting a revenue of $29.70 billion and an EPS of $5.27 over the past twelve months. With an operating margin that ranks higher than 73.14% of its industry competitors, the company's profitability score is a solid 7 out of 10.
Regarding growth, Dollar Tree's average annual revenue growth of 8.5% surpasses 64.34% of its industry counterparts. Furthermore, its three-year average EBITDA growth rate of 18.8% is more favorable than 75.58% of the industry, highlighting the company's strong growth trajectory.
The ROIC vs. WACC Analysis for Dollar Tree
An insightful way to gauge a company's value creation is by comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Dollar Tree's ROIC of 5.99% is closely aligned with its WACC of 6.65%, indicating a balanced relationship between the cash flow generated and the capital invested.
Conclusion: Is Dollar Tree (DLTR, Financial) a Worthwhile Investment?
In summary, Dollar Tree (DLTR) is perceived as modestly undervalued based on the GF Value. The company's financial condition and profitability are deemed fair, and its growth outperforms a significant portion of the Retail - Defensive industry. For a more detailed exploration of Dollar Tree's financials, interested investors can review 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.
