With EPS Growth And More, Dollar Tree (NASDAQ:DLTR) Makes An Interesting Case

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. But the reality is that when a company loses money each year, for long enough, its investors will usually take their share of those losses. Loss making companies can act like a sponge for capital - so investors should be cautious that they're not throwing good money after bad.

So if this idea of high risk and high reward doesn't suit, you might be more interested in profitable, growing companies, like Dollar Tree (NASDAQ:DLTR). 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 Improving Profits

Dollar Tree has undergone a massive growth in earnings per share over the last three years. So much so that this three year growth rate wouldn't be a fair assessment of the company's future. So it would be better to isolate the growth rate over the last year for our analysis. Dollar Tree has grown its trailing twelve month EPS from US$6.38 to US$7.00, in the last year. That amounts to a small improvement of 9.6%.

It's often helpful to take a look at earnings before interest and tax (EBIT) margins, as well as revenue growth, to get another take on the quality of the company's growth. While we note Dollar Tree achieved similar EBIT margins to last year, revenue grew by a solid 5.4% to US$27b. That's a real positive.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

You don't drive with your eyes on the rear-view mirror, so you might be more interested in this free report showing analyst forecasts for Dollar Tree's future profits.

Are Dollar Tree Insiders Aligned With All Shareholders?

We would not expect to see insiders owning a large percentage of a US$31b company like Dollar Tree. But we do take comfort from the fact that they are investors in the company. We note that their impressive stake in the company is worth US$395m. This suggests that leadership will be very mindful of shareholders' interests when making decisions!

It's good to see that insiders are invested in the company, but are remuneration levels reasonable? Our quick analysis into CEO remuneration would seem to indicate they are. Our analysis has discovered that the median total compensation for the CEOs of companies like Dollar Tree, with market caps over US$8.0b, is about US$13m.

Dollar Tree offered total compensation worth US$10m to its CEO in the year to January 2022. That is actually below the median for CEO's of similarly sized companies. While the level of CEO compensation shouldn't be the biggest factor in how the company is viewed, modest remuneration is a positive, because it suggests that the board keeps shareholder interests in mind. It can also be a sign of good governance, more generally.

Is Dollar Tree Worth Keeping An Eye On?

One important encouraging feature of Dollar Tree is that it is growing profits. Earnings growth might be the main attraction for Dollar Tree, but the fun does not stop there. With a meaningful level of insider ownership, and reasonable CEO pay, a reasonable mind might conclude that this is one stock worth watching. Now, you could try to make up your mind on Dollar Tree by focusing on just these factors, or you could also consider how its price-to-earnings ratio compares to other companies in its industry.

The beauty of investing is that you can invest in almost any company you want. But if you prefer to focus on stocks that have demonstrated insider buying, here is a list of companies with insider buying in the last three months.

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.