Despite beating sales and earnings estimates for the quarter ($6.48 billion vs. $6.41 billion and $1.60 per share, compared to the estimate of $1.40 per share), shares of this discounter fell, due to forecasted rising freight costs—a good opportunity for entry.
Dollar Tree, Inc. (DLTR)
From Validea Hot List Newsletter
P/E Growth: Peter Lynch
Dollar Tree, Inc. is an operator of discount variety stores. As of January 28, 2017, the company operated 14,334 stores in 48 states and the District of Columbia, and five Canadian provinces. Its segments include Dollar Tree and Family Dollar. The Dollar Tree segment is the operator of discount variety stores offering merchandise at a fixed price. The Family Dollar segment operates a chain of general merchandise retail discount stores providing consumers with a selection of merchandise in neighborhood stores. Its stores operate under the names of Dollar Tree, Family Dollar and Dollar Tree Canada. As of January 28, 2017, the Dollar Tree segment included 6,360 stores operating under the Dollar Tree and Dollar Tree Canada brands, 11 distribution centers in the United States and two in Canada and a Store Support Center in Chesapeake, Virginia, and 11 distribution centers and a Store Support Center in Matthews, North Carolina under the Family Dollar brand.
DLTR is considered a “True Stalwart”, according to this methodology, as its earnings growth of 18.24% lies within a moderate 10%-19% range and its annual sales of $25,702 million are greater than the multi-billion dollar level. This methodology looks for the “Stalwart” securities to gain 30%-50% in value over a two year period if they can be purchased at an attractive price based on the P/E to Growth ratio. DLTR is attractive if DLTR can hold its own during a recession.
YIELD ADJUSTED P/E TO GROWTH (PEG) RATIO: PASS
The Yield-adjusted P/E/G ratio for DLTR (0.86), based on the average of the 3, 4 and 5 year historical eps growth rates, is O.K.
EARNINGS PER SHARE: PASS
The EPS for a stalwart company must be positive. DLTR’s EPS ($6.22) would satisfy this criterion.
TOTAL DEBT/EQUITY RATIO: PASS
This methodology would consider the Debt/Equity ratio for DLTR (43.55%) to be normal (equity is approximately twice debt).
John Reese, Validea Hot List Newsletter, validea.com, 877-439-0506, May 28, 2021