As of September 04, 2023, Dollar Tree Inc (DLTR, Financial) has seen a daily loss of -2.96% and a 3-month loss of -8.35%. Despite these losses, the company's Earnings Per Share (EPS) stands at 5.5. This raises a crucial question for investors and potential shareholders: is Dollar Tree modestly undervalued? In this article, we aim to provide an in-depth analysis of Dollar Tree's valuation, financial strength, profitability, and growth. We encourage you to read on for a comprehensive understanding of the company's financial health and market value.
Introduction to Dollar Tree Inc (DLTR, Financial)
Dollar Tree operates discount stores in the U.S. and Canada, with 8,134 stores under its namesake banner and 8,206 Family Dollar units as of the end of fiscal 2022. The company offers a mix of branded and own-label goods, with most items priced at $1.25. It has a diverse income structure, with sales coming from a variety of categories including consumables, variety items, and seasonal goods. The company's current stock price is $118.74, and with a GF Value of $150.98, it appears to be modestly undervalued.
Understanding Dollar Tree's GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Given its current price of $118.74 per share and a market cap of $26.10 billion, Dollar Tree (DLTR, Financial) appears to be modestly undervalued. As a result, the long-term return of its stock is likely to be higher than its business growth.
Assessing Dollar Tree's Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it is crucial to review a company's financial strength before purchasing shares. One way to understand a company's financial strength is by looking at its cash-to-debt ratio and interest coverage. Dollar Tree has a cash-to-debt ratio of 0.05, ranking worse than 89.97% of 309 companies in the Retail - Defensive industry. The overall financial strength of Dollar Tree is 6 out of 10, indicating fair financial health.
Profitability and Growth of Dollar Tree
Investing in profitable companies, especially those with consistent profitability over the long term, poses less risk. Dollar Tree has been profitable 9 out of the past 10 years. Over the past twelve months, the company had a revenue of $29.30 billion and an Earnings Per Share (EPS) of $5.5. Its operating margin is 5.82%, ranking better than 76.8% of 306 companies in the Retail - Defensive industry. Overall, GuruFocus ranks Dollar Tree's profitability at 7 out of 10, indicating fair profitability.
Growth is a crucial factor in the valuation of a company. Dollar Tree's 3-year average revenue growth rate is better than 64.36% of 289 companies in the Retail - Defensive industry. Dollar Tree's 3-year average EBITDA growth rate is 18.8%, which ranks better than 73.15% of 257 companies in the Retail - Defensive industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and the Weighted Average Cost of Capital (WACC) is another way to assess its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, ROIC should be higher than WACC. For the past 12 months, Dollar Tree's ROIC is 6.37, and its WACC is 6.67.
Conclusion
In conclusion, the stock of Dollar Tree (DLTR, Financial) appears to be modestly undervalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 73.15% of 257 companies in the Retail - Defensive industry. For more detailed financial information about Dollar Tree, you can check out its 30-Year Financials here.
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