DLTR: A Close Look at Valuations and Stock Performance



A look at Dollar Tree’s stock market performance

Dollar Tree’s (DLTR) stock market performance has been quite satisfactory so far this year. The company is sitting at a YTD (year-to-date) profit of more than 20%. Discount store peer Dollar General (DG) has also done reasonably well. The company is up ~13% to date.

The performance of these two discount stores is particularly impressive compared with supermarkets. Supervalu (SVU) and Kroger (KR), for instance, are down 53% and 36%, respectively, to date.

Dollar stores’ stronger business model has resulted in consistent sales comps growth despite a highly competitive retail model, which has reflected well in their stock market performance.

“The Dollar Tree banner is one of the most defensible retail concepts” and is also “largely immune” to the Amazon threat due to its business model, said Bernstein analyst Brandon Fletcher while upgrading the company.

On the other hand, supermarkets have fumbled in maintaining positive comps over the last year—sometimes on account of deflation and at other times because of ongoing price wars.

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Looking at valuations, who’s more attractive?

Dollar Tree is currently trading at a one-year-forward price-to-earnings ratio of 19x, close to the upper end of its 52-week PE range of 15x–21x. The company is trading at a premium to Dollar General, which is valued at about 17.7x.

Dollar Tree has been historically expensive to Dollar General. While DLTR has a three-year average PE of 20x, DG has been trading at 17x.

However, DLTR’s valuations look more appealing when we compare the near-term earnings potential of the two companies. Its earnings are projected to rise 19% over the next 12 months. In comparison, Dollar General’s earnings are likely to rise 5.6% over the same period.

Investors looking for exposure to Dollar Tree through ETFs can consider the iShares Morningstar Mid-Cap Growth ETF (JKH), which invests 1.2% of its total holdings in the company.


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