Dollar Tree (DLTR) is currently trading at a one-year forward price-to-earnings (or PE) multiple of 21x, operating in the middle of its 52-week PE range of 18x–24.8x. The company is trading at a premium to Dollar General (DG) and at a discount to Price Smart (PSMT).
TJX Companies’ (TJX) valuations are similar to Dollar Tree’s. The one-year forward PE multiples of PriceSmart, Dollar General, and TJX are 28.2x, 17.1x, and 21.4x, respectively, as of November 23, 2016.
A quick look at DLTR’s earnings
Dollar Tree’s earnings per share (or EPS) fell 7.7% in 2015. As the company moved into 2016 and started to integrate its business with its Family Dollar acquisition, its EPS saw a boost. Its EPS rose 25%, 7.5%, and 65%, respectively, in the first three quarters of 2016. For 2016, Wall Street analysts have predicted a rise of 32% in DLTR’s EPS.
Earnings potential comparison
While Dollar Tree is priced reasonably compared to PriceSmart and Dollar General, the company has better earnings potential compared to the two companies. Dollar Tree’s EPS are expected to rise 25% over the next 12 months. In comparison, PriceSmart’s and Dollar General’s EPS are likely to rise 10.2% and 8.9%, respectively, in the next year.
TJX Companies, which is cheaper than DLTR in terms of its one-year forward earnings multiple, is forecast to see an EPS rise of 7.5% over the next 12 months.
Together, Price Smart, TJX Companies, Dollar General, and Dollar Tree make up 4.8% of the portfolio holdings of the SPDR S&P Retail ETF (XRT). XRT has exposure to about 100 stocks in the retail sector.