Analyzing Dollar Tree’s Valuations and Stock Performance

Dollar Tree’s stock market performance

Dollar Tree (DLTR) delivered a stunning stock market performance in 2017. Dollar Tree stock had returns of ~40%. Dollar Tree outperformed Dollar General (DG), which surged 26%, and TJX Companies (TJX), which rose 2% during the year.

Analyzing Dollar Tree’s Valuations and Stock Performance

However, last year was full of struggles for Kroger (KR) and Supervalu (SVU). They witnessed stock price declines of 20% and 34%. Kroger and Supervalu fought to maintain market share against Walmart (WMT) and Amazon (AMZN). Walmart was among the top gainers in the industry with stock returns of 43% in 2017.

Dollar Tree started 2018 with a solid performance. Dollar Tree’s stock price touched an all-time high in January. However, Dollar Tree’s share price has fallen more than 7% in the past month. The company is sitting at a YTD loss of 1% as of February 23, 2018. Dollar Tree is trading 9.4% below its 52-week high price.

Valuations

Currently, Dollar Tree is trading at a one-year forward PE (price-to-earnings) ratio of 18.7x—closer to the upper end of its 52-week PE range of 14.9x–21.1x. Dollar General is trading at similar valuations. Dollar General has a one-year forward PE ratio of 18.4x.

While the two companies have similar valuations, Dollar Tree is trading below its three-year average forward PE ratio, while Dollar General is trading above the historical average. Dollar Tree and Dollar General have three-year average forward PE ratios of 20.2x and 17.3x, respectively.

Dollar Tree is cheaper and looks more appealing when we look at its near-term earnings potential. Dollar Tree’s earnings are expected to increase 31.3% over the next 12 months. In comparison, Dollar General’s earnings are projected to increase ~15% during same period. Dollar General is scheduled to report its 4Q17 results on March 7.

Investors looking for exposure to Dollar Tree through ETFs could consider the iShares Morningstar Mid-Cap Growth ETF (JKH). JKH invests 1.3% of its total holdings in Dollar Tree.