Should You Be Adding Dollar Tree (NASDAQ:DLTR) To Your Watchlist Today?

The excitement of investing in a company that can reverse its fortunes is a big draw for some speculators, so even companies that have no revenue, no profit, and a record of falling short, can manage to find investors. Sometimes these stories can cloud the minds of investors, leading them to invest with their emotions rather than on the merit of good company fundamentals. A loss-making company is yet to prove itself with profit, and eventually the inflow of external capital may dry up.

In contrast to all that, many investors prefer to focus on companies like Dollar Tree (NASDAQ:DLTR), which has not only revenues, but also profits. Even if this company is fairly valued by the market, investors would agree that generating consistent profits will continue to provide Dollar Tree with the means to add long-term value to shareholders.

Check out our latest analysis for Dollar Tree

Dollar Tree's Earnings Per Share Are Growing

If you believe that markets are even vaguely efficient, then over the long term you'd expect a company's share price to follow its earnings per share (EPS) outcomes. Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Dollar Tree has grown EPS by 34% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be beaming.

Top-line growth is a great indicator that growth is sustainable, and combined with a high earnings before interest and taxation (EBIT) margin, it's a great way for a company to maintain a competitive advantage in the market. EBIT margins for Dollar Tree remained fairly unchanged over the last year, however the company should be pleased to report its revenue growth for the period of 7.7% to US$28b. That's a real positive.

The chart below shows how the company's bottom and top lines have progressed over time. To see the actual numbers, click on the chart.

Fortunately, we've got access to analyst forecasts of Dollar Tree's future profits. You can do your own forecasts without looking, or you can take a peek at what the professionals are predicting.

Are Dollar Tree Insiders Aligned With All Shareholders?

Insider interest in a company always sparks a bit of intrigue and many investors are on the lookout for companies where insiders are putting their money where their mouth is. Because often, the purchase of stock is a sign that the buyer views it as undervalued. However, small purchases are not always indicative of conviction, and insiders don't always get it right.

Despite US$305k worth of sales, Dollar Tree insiders have overwhelmingly been buying the stock, spending US$1.1m on purchases in the last twelve months. An optimistic sign for those with Dollar Tree in their watchlist. It is also worth noting that it was Executive Chairman & CEO Richard Dreiling who made the biggest single purchase, worth US$1.0m, paying US$142 per share.

Along with the insider buying, another encouraging sign for Dollar Tree is that insiders, as a group, have a considerable shareholding. With a whopping US$79m worth of shares as a group, insiders have plenty riding on the company's success. This would indicate that the goals of shareholders and management are one and the same.

Is Dollar Tree Worth Keeping An Eye On?

If you believe that share price follows earnings per share you should definitely be delving further into Dollar Tree's strong EPS growth. Furthermore, company insiders have been adding to their significant stake in the company. So it's fair to say that this stock may well deserve a spot on your watchlist. Once you've identified a business you like, the next step is to consider what you think it's worth. And right now is your chance to view our exclusive discounted cashflow valuation of Dollar Tree. You might benefit from giving it a glance today.

Keen growth investors love to see insider buying. Thankfully, Dollar Tree isn't the only one. You can see a a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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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.