With a daily loss of 5.21%, a 3-month loss of 26.01%, and an Earnings Per Share (EPS) (EPS) of 5.5, Dollar Tree Inc (DLTR, Financial) raises a critical question: is the stock significantly undervalued? This article aims to answer this question through a detailed valuation analysis. Read on to delve into the financial intricacies of Dollar Tree (DLTR).
Company Introduction
Dollar Tree operates discount stores in the U.S. and Canada, with a total of 16,340 stores under its banner and Family Dollar units as of the end of fiscal 2022. The company deals in a wide range of products, with most items priced at $1.25. The current stock price is $105.5, while the fair value (GF Value) is estimated to be $151.96, indicating that the stock might be significantly undervalued.
Understanding GF Value
The GF Value is a unique measure of the intrinsic value of a stock, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
According to GuruFocus Value calculation, Dollar Tree (DLTR, Financial) is significantly undervalued. With a market cap of $23.20 billion, the stock is estimated to offer much higher long-term returns than its business growth due to its undervaluation.
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Financial Strength
Investing in companies with poor financial strength carries a high risk of permanent capital loss. Dollar Tree's cash-to-debt ratio of 0.05 ranks worse than 89.87% of 306 companies in the Retail - Defensive industry. However, with an overall financial strength rank of 6 out of 10, Dollar Tree's financial condition is deemed fair.
Profitability and Growth
Consistent profitability over the long term indicates lower risk for investors. Dollar Tree, with an operating margin of 5.82%, ranks better than 76.53% of 311 companies in the Retail - Defensive industry. The company's profitability rank is 7 out of 10, indicating fair profitability.
In terms of growth, Dollar Tree's average annual revenue growth of 8.5% ranks better than 64.01% of 289 companies in the Retail - Defensive industry, and its 3-year average EBITDA growth of 18.8% ranks better than 74.03% of 258 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. Dollar Tree's ROIC in the past 12 months is 6.37, while its WACC stands at 7.05.
Conclusion
In conclusion, Dollar Tree (DLTR, Financial) is significantly undervalued. With fair financial health and profitability, and above-average growth compared to other companies in the Retail - Defensive industry, Dollar Tree presents an interesting investment opportunity. For a more detailed financial overview of Dollar Tree, check out its 30-Year Financials here.
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