Dollar Tree Inc (DLTR, Financial) has recently experienced a daily loss of -3.08% and a 3-month decline of -11.58%, alongside a notable Loss Per Share of 4.62. Investors might wonder, with these figures in mind, whether the stock is modestly undervalued. This article delves into the valuation analysis of Dollar Tree, guiding the reader through an in-depth exploration of the company's current market position.
Company Introduction
Dollar Tree operates a vast network of discount stores throughout the United States and Canada, with a strong presence under both the Dollar Tree and Family Dollar banners. With a diverse product mix, the company caters to a wide range of consumer needs, from consumables to variety and seasonal items. The current stock price of $117.99 seems modestly undervalued when compared to the GF Value of $158.9, suggesting potential for future appreciation. This introduction sets the stage for a comprehensive examination of Dollar Tree's intrinsic value, merging financial analysis with key company insights.
Summarize GF Value
The GF Value is a unique measure that determines the intrinsic value of a stock, based on historical trading multiples, a GuruFocus adjustment factor for past performance, and future business estimates. It serves as a benchmark for fair trading value. Currently, Dollar Tree (DLTR, Financial) appears modestly undervalued according to this metric. This suggests that the stock's long-term return could outpace its business growth, making it an attractive prospect for value investors.
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Financial Strength
Investors must consider a company's financial strength to avoid the high risk of permanent capital loss. Dollar Tree's cash-to-debt ratio is lower than most of its peers in the Retail - Defensive industry, which may raise some concerns. However, with a financial strength rating of 5 out of 10, Dollar Tree's financial situation is deemed fair, indicating a balanced risk-reward scenario for potential investors.
Profitability and Growth
Profitability is a crucial aspect of a company's investment profile. Dollar Tree has maintained profitability over the last decade, with fair profit margins. However, its operating margin is lower than many competitors, reflecting some challenges in efficiency. In terms of growth, Dollar Tree's revenue has fared better than over 65% of its industry counterparts, but its EBITDA growth rate is concerning, with no increase over a three-year average.
ROIC vs WACC
The comparison between a company's Return on Invested Capital (ROIC) and its Weighted Average Cost of Capital (WACC) can reveal its value creation efficiency. Dollar Tree's ROIC is currently below its WACC, suggesting the company may not be generating sufficient returns on its investments. This could be a point of concern for investors looking for companies that consistently create shareholder value.
Conclusion
In summary, Dollar Tree (DLTR, Financial) is considered modestly undervalued, with fair financial health and profitability. Despite its challenges in growth and value creation, the company's current market valuation could offer a favorable entry point for long-term investors. For a deeper understanding of Dollar Tree's financials, investors are encouraged to review its 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.
