What Is Dollar Tree, Inc.'s (NASDAQ:DLTR) Share Price Doing?

Let's talk about the popular Dollar Tree, Inc. (NASDAQ:DLTR). The company's shares saw a significant share price rise of 45% in the past couple of months on the NASDAQGS. The company's trading levels have reached its high for the past year, following the recent bounce in the share price. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could the stock still be trading at a relatively cheap price? Let’s take a look at Dollar Tree’s outlook and value based on the most recent financial data to see if the opportunity still exists.

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What's The Opportunity In Dollar Tree?

The share price seems sensible at the moment according to our price multiple model, where we compare the company's price-to-earnings ratio to the industry average. In this instance, we’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. We find that Dollar Tree’s ratio of 22.14x is trading slightly below its industry peers’ ratio of 22.14x, which means if you buy Dollar Tree today, you’d be paying a reasonable price for it. And if you believe that Dollar Tree should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Furthermore, Dollar Tree’s share price also seems relatively stable compared to the rest of the market, as indicated by its low beta. This may mean it is less likely for the stock to fall lower from natural market volatility, which suggests less opportunities to buy moving forward.

View our latest analysis for Dollar Tree

What does the future of Dollar Tree look like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. With profit expected to grow by 25% over the next couple of years, the future seems bright for Dollar Tree. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

What This Means For You

Are you a shareholder? It seems like the market has already priced in DLTR’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at DLTR? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on DLTR, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for DLTR, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

With this in mind, we wouldn't consider investing in a stock unless we had a thorough understanding of the risks. Every company has risks, and we've spotted 3 warning signs for Dollar Tree you should know about.

If you are no longer interested in Dollar Tree, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.