Dollar Tree Inc (DLTR, Financial) recently reported a daily gain of 1.42%, yet it has experienced a significant 3-month loss of 22.2%. Additionally, the company reported a Loss Per Share of 4.62. With these figures in mind, the essential question arises: is Dollar Tree modestly undervalued? This article delves into the company's valuation to provide insights.
Company Introduction
Dollar Tree operates a vast network of discount stores across the United States and Canada, comprising over 8,400 shops under the Dollar Tree banner and 8,350 under Family Dollar. The company's sales in fiscal 2023 were predominantly from consumables, variety items, and seasonal products. Dollar Tree stores, located mainly in suburban areas, typically sell items at the $1.25 price point. In contrast, Family Dollar focuses on consumables priced below $10, with locations in urban, suburban, and rural areas. This business model positions Dollar Tree uniquely in the retail market.
Understanding GF Value
The GF Value is a proprietary measure that assesses the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and estimated future business performance. This valuation suggests that Dollar Tree's fair market value is $159.23 per share, which contrasts with its current trading price of $114.62. This discrepancy indicates that Dollar Tree (DLTR, Financial) is modestly undervalued, suggesting potential for higher future returns relative to its current market valuation.
Financial Strength and Risks
Investing in companies with robust financial strength is crucial to mitigate the risk of capital loss. Dollar Tree's cash-to-debt ratio stands at 0.07, which is lower than 87.01% of its peers in the Retail - Defensive industry. This ratio, coupled with an interest coverage check, indicates that Dollar Tree's financial strength is fair, scoring 5 out of 10 by GuruFocus standards.
Profitability and Growth Perspectives
Dollar Tree has maintained profitability over the last decade, with recent annual revenues reaching $30.60 billion. However, its operating margin of 0.61% ranks lower than most competitors. The company's growth, measured by average annual revenue increases, is better than 64.07% of industry peers, highlighting its potential despite current challenges.
Value Creation Assessment
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) provides insight into value creation. Dollar Tree's ROIC of 0.92 versus a WACC of 7.16 suggests it is currently not generating sufficient returns above its capital costs, which is a crucial area for potential improvement.
Conclusion
In conclusion, while Dollar Tree (DLTR, Financial) appears modestly undervalued according to the GF Value, the company faces challenges in profitability and value creation. Investors should monitor these aspects closely. For more detailed financial analysis, visit Dollar Tree's 30-Year Financials.
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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.
