DLTR Drops 8.4% In A Day, Time To Buy The Stock?

We believe there is a near-equal mix of good and bad in DLTR stock given its overall Moderate operating performance and financial condition. Considering stock’s Low valuation we think it is Attractive. Here is our multi-factor assessment.

But no matter how attractive, investing in a single stock carries high risk. Trefis High Quality Portfolio and is designed to reduce stock-specific risk while giving upside exposure

Let’s get into details of each of the assessed factors but before that, for quick background: With $21 Bil in market cap, Dollar Tree operates discount retail stores offering fixed-price merchandise and general consumable goods through two distinct segments.

[1] Valuation Looks Low

This table highlights how DLTR is valued vs broader market. For more details see: DLTR Valuation Ratios

[2] Growth Is Inconsistent

• Dollar Tree has seen its top line shrink at an average rate of -20.9% over the last 3 years
• Its revenues have grown 14% from $10 Bil to $12 Bil in the last 12 months
• Also, its quarterly revenues grew 12.3% to $4.6 Bil in the most recent quarter from $4.1 Bil a year ago.

This table highlights how DLTR is growing vs broader market. For more details see: DLTR Revenue Comparison

[3] Profitability Appears Weak

• DLTR last 12 month operating income was $1.5 Bil representing operating margin of 12.3%
• With cash flow margin of 24.8%, it generated nearly $2.9 Bil in operating cash flow over this period
• For the same period, DLTR generated nearly $-2.9 Bil in net income, suggesting net margin of about -24.9%

This table highlights how DLTR profitability vs broader market. For more details see: DLTR Operating Income Comparison

[4] Financial Stability Looks Moderate

• DLTR Debt was $7.3 Bil at the end of the most recent quarter, while its current Market Cap is $21 Bil. This implies Debt-to-Equity Ratio of 34.6%
• DLTR Cash (including cash equivalents) makes up $666 Mil of $13 Bil in total Assets. This yields a Cash-to-Assets Ratio of 5.0%

[4] Downturn Resilience Is Moderate

DLTR saw an impact slightly better than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• DLTR stock fell 40.5% from a high of $174.08 on 20 April 2022 to $103.64 on 3 October 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $150.02 on 7 March 2024 , and currently trades at $102.03

 
2020 Covid Pandemic

• DLTR stock fell 30.3% from a high of $94.05 on 1 January 2020 to $65.57 on 18 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 28 May 2020

 
2008 Global Financial Crisis

• DLTR stock fell 53.3% from a high of $15.19 on 6 June 2007 to $7.10 on 15 January 2008 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 2 June 2009

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read DLTR Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – S&P 500, Russell, and S&P midcap. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.