23 Feb

Dollar Tree’s Valuation Multiple: What Can It Tell Us?

WRITTEN BY Mark Jonker

Price-to-earnings multiple

The current PE (price-to-earnings) multiple of Dollar Tree (DLTR) (XLY) (XRT) is 28.1x, which means that the investors today are paying 28 times the last four quarters’ EPS (earnings per share) to acquire the stock of the company. This multiple seems quite high compared with Dollar General’s (DG) and Walmart’s (WMT) multiples, which are trading at 18.7x and 14.6x, respectively. It is also quite high compared with the historical average for dollar stores of 15x. So why such a high multiple?

Dollar Tree’s Valuation Multiple: What Can It Tell Us?

The reason for this is that people are investing in the prospects of the post-integration Dollar Tree (DLTR) and Family Dollar, and synergies are expected to be reflected in fundamentals around fiscal 2017 and 2018. As can be seen from the above chart, the next-12-month PE has fallen significantly.

Price-to-sales multiple

The current PS (price-to-sales) multiple of Dollar Tree (DLTR) is 1.4x, slightly higher than its closest peer Dollar General’s 1.1x. However, the 35% growth expected in fiscal 2016 should pull down the forward PS multiple to 0.92x, which is in line with its peers’.

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