Print Friendly and PDF

Is Dollar Tree Stock a
Good Value like its Stores?

Over the course of his career, Brent Wilsey, President of Wilsey Asset Management, has bought, sold, and rebought that same company on several occasions. He does this because he is already comfortable with the company and understands the business very well. Financial strategist Wilsey, takes a closer look at Dollar Tree (DLTR) for this reason.

“After a nice return of over 30% last year, Dollar Tree (DLTR) is under some pressure of late as it has seen its stock price fall nearly 20% for the year. In the recent quarter, the company missed on earnings and revenue forecasts plus it cut its profit outlook for the remainder of the year. I like to look for companies which have pullbacks due to short term fixable problems. Dollar Tree cited bad weather and rising freight costs as the reasons the quarter didn’t go as planned.

Bad weather is a non-recurring event which can change from year to year, so this could be a problem which does not persist for the fundamentals of the business. The freight costs could be problematic given the strength in the economy and the high demand for freight. I would want to take a closer look at how damaging this could be to the business and how it plans to handle the increased freight costs.

Many of us will recognize the discount retailer as it operates 14,334 stores in 48 states and 5 Canadian provinces under the Dollar Tree and Family Dollar names.

Although we know the name, it is important to look at the valuations of the company. The current P/E of 17.9 looks very favorable against the industry average of 120.2; Price/Sales of 0.9 is inexpensive against the industry average of 2.9; and Price/Cash Flow of 11.4 is also better than the industry average of 38.1. While these ratios look favorable, I am concerned by the comparison.

Being in the industry of retail (department and discount), companies such as Sears and JC Penney which have elevated the average ratios due to a lack of earnings and cash flow. The company currently does not pay a dividend, but the sales growth of 7.6% over the last 12 months and EPS growth of 28.2% over the same time frame looks quite strong.

The balance sheet looks good as there is enough liquidity with a current ratio of 2.11. Debt is under control when looking at a Debt/Equity of 69.8%. One area of concern is a Price/Tangible Book Value which is not material. The company must have completed some acquisitions as there is now goodwill on the balance sheet which exceeds $5 billion. The major increase occurred in 2016 and before considering an investment in the company I would want to understand much more about this transaction.

While the company sells its products at a good value it is still able to generate a solid profit margin of nearly 5%. This is more than double the industry average of 2.4% and illustrates the company has good supplier relationships as well as an efficient business model.

If we look forward to January 2020 estimated GAAP EPS of $6.27 would give us a target sell price of $103.46. This would generate an estimated return of 19% from todays close of $86.59. Due to the narrow-estimated return, Dollar Tree would be rated in the Hold category at our firm.”

Source: Brent M. Wilsey a seasoned financial strategist with over 40 years of experience in the field. Wilsey currently owns and operates San Diego-based Wilsey Asset Management with nearly $200 million under management. To view investment services provided by the firm visit www.wilseyassetmanagement.com.


The Bull & Bear Financial Report
Copyright | All Rights Reserved
Reproduction in whole or part is strictly prohibited
without prior written permission
NOTE: The Bull & Bear Financial Report does not itself endorse or guarantee
the accuracy or reliability of information, statements or opinions
expressed by any individuals or organizations posted on this site
PLEASE READ DISCLAIMER


Web Site Designed & Maintained by
Gemini Communications

This website is a publication of the
Bull & Bear Media Group, Inc.
Editor@TheBullandBear.com