Headquartered in Virginia, Dollar Tree, Inc. (DLTR) operates a chain of North American discount retail stores. I am bullish on the stock.
It was practically unimaginable just a year or two ago, but here we are: two consecutive months of 8%-or-higher annualized U.S. inflation, plus a GDP growth print that was just revised downward from an already dismal -1.4% to -1.5%. It’s enough to convince some folks to avoid the stock market completely, out of fear that inflation will persist and a recession will engulf the economy.
Yet, you don’t have to hide out in an all-cash position due to fears of an economic slowdown. Indeed, if inflation remains elevated, the value of your cash will dwindle. Thus, it makes sense to invest in businesses that could survive and even thrive when inflation is elevated and persistent.
When prices get high and pocketbooks get lean, shoppers turn to a particular discount retailer where they can stretch their dollars. At the same time, investors can look to this famous American store chain for a surprising bargain, and a potential bulwark against an economic hard landing.
On TipRanks, DLTR receives a Smart Score rating of 10 out of 10, indicating a high potential for the stock to outperform the broader market.
The Price is Right
Of course, we’re talking about the one and only Dollar Tree, where discounts abound and, despite the store’s name, the items typically sell for slightly more than a dollar. During the onset of the COVID-19 pandemic, Dollar Tree stock held up well compared to some other retail stocks, probably because shoppers flocked to Dollar Tree stores to load up on essential goods.
There might not be as much panic-buying today as there was in March of 2020, but Dollar Tree remains popular as a store where folks can get the most for their money. With a combination of generic and name brands on its shelves, Dollar Tree is like a mecca for sensible shoppers during inflationary times.
As for Dollar Tree stock, it’s been wobbly in 2022 so far, but that’s to be expected when recession fears are roiling the financial markets. Besides, value-focused investors should be glad to know that Dollar Tree has a trailing 12-month P/E ratio of 28.13, which is fairly reasonable.
Speaking of good value, in a conference call, Dollar Tree Executive Chairman Rick Dreiling emphasized the store’s essential role for struggling Americans during amid ongoing economic challenges.
“In tough times, value retail can be part of the solution to help families stretch their dollars to meet their evolving needs. Dollar Tree and Family Dollar provide convenience as our 16,000-plus stores are located close to millions of households to live and work,” Dreiling explained.
A Solid Start
So, now we can clearly see Dollar Tree’s value proposition to its investors, as well as to the community when inflation strikes and recession looms. Does the company’s financial data support a bullish stance on Dollar Tree now, though?
In light of the company’s first quarter fiscal 2022 results, Dollar Tree President and CEO Michael Witynski asserted that his company “delivered a solid start to the year.” Assuredly, there’s no shortage of data points to back up Witynski’s contention.
First, we can start with the company’s top-line results. During Q1 of FY2022, Dollar Tree recorded $6.9 billion in consolidated net sales, up 6.5% year over year. Also, comparable same-store sales at Dollar Tree branded stores increased 11.2%. Plus, Dollar Tree’s quarterly gross margin improved 360 basis points year over year, to 33.9%.
Next, we’ll turn to the quarterly bottom-line results, which were also impressive. As it turned out, Dollar Tree reported a 19.2% increase in gross profit to $2.34 billion, as well as a 43.2% rise in net income to $536.4 million. On top of all that, Dollar Tree’s quarterly diluted earnings per share of $2.37 represented a 48.1% year-over-year increase as well as a company record.
No doubt about it: Witynski was fully justified in saying that Dollar Tree is off to a “solid start” in 2022. Moreover, the company’s full FY2022 outlook is optimistic as Dollar Tree guided for diluted earnings per share in the range of $7.80 to $8.20. Furthermore, the company raised its full-year guidance for consolidated net sales to a range of $27.76 billion to $28.14 billion.
Dollar Tree’s sense of optimism evidently spilled over into Witynski’s commentary as he emphasized the company’s “unique and resilient business model” as well as Dollar Tree’s “earnings power and momentum” during the conference call. Only time will tell, but it certainly appears that the company should be able to maintain its resilience and momentum in the coming quarters.
Wall Street’s Take
According to TipRanks’ analyst rating consensus, DLTR is a Strong Buy, based on 11 Buy and three Hold ratings, and one Sell rating. The average Dollar Tree price target is $174.39, implying 8.31% upside potential.
The Takeaway
When economic conditions tighten, Dollar Tree stores can be a place to lighten your financial burden. Similarly, Dollar Tree stock offers good value for cost-conscious investors.
Witynski sounds confident in Dollar Tree’s ability to execute throughout the year, but there are data points to support his optimism. So, for a prime bargain and a potential winner when inflation and recession threaten the economy, feel free to go shopping for some shares of Dollar Tree.
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