Dollar Tree Inc (DLTR, Financial), experiencing a daily gain of 1.87% and a 3-month loss of 25.81%, has an Earnings Per Share (EPS) of 5.5. This article aims to answer the question: is DLTR's stock significantly undervalued? The following analysis will delve into the valuation of Dollar Tree, providing insights to potential investors.
Company Overview
Dollar Tree operates discount stores in the U.S. and Canada, featuring a mix of branded and own-label goods. With a current stock price of $106.35 and a market cap of $23.40 billion, Dollar Tree's fair value, or GF Value, is estimated at $152.18. This comparison between the stock price and the GF Value sets the stage for an in-depth exploration of the company's value.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally be traded.
According to the GF Value calculation, Dollar Tree's stock is believed to be significantly undervalued. This suggests that the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Before investing in a company, it's crucial to assess its financial strength. Dollar Tree's cash-to-debt ratio is 0.05, which is lower than 89.87% of 306 companies in the Retail - Defensive industry. Its overall financial strength is rated 6 out of 10, indicating fair financial health.
Profitability and Growth
Consistent profitability over the long term typically indicates a less risky investment. Dollar Tree has been profitable 9 out of the past 10 years, with an operating margin of 5.82%, ranking better than 76.53% of 311 companies in the Retail - Defensive industry. Overall, Dollar Tree's profitability is ranked 7 out of 10, indicating fair profitability.
Growth is a critical factor in a company's valuation. Dollar Tree's 3-year average annual revenue growth is 8.5%, ranking better than 64.01% of 289 companies in the Retail - Defensive industry. Its 3-year average EBITDA growth rate is 18.8%, which ranks better than 74.03% of 258 companies in the Retail - Defensive industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted average cost of capital (WACC) can provide insights into its profitability. Dollar Tree's ROIC is 6.37, and its WACC is 7.05, indicating the need for improvement.
Conclusion
In conclusion, Dollar Tree's stock is believed to be significantly undervalued. The company's financial condition and profitability are fair, and its growth ranks better than 74.03% of companies in the Retail - Defensive industry. For more details about Dollar Tree's stock, check out its 30-Year Financials here.
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