Dollar Tree (DLTR) has been one of the most popular stocks among Zacks.com visitors recently, so it may be a good idea to take a look at some factors that could impact the stock's near-term performance.
Shares of the discount retailer have returned -4.6% over the past month versus a +0.3% change for the Zacks S&P 500 composite index. The Zacks Retail – Discount Stores industry, which Dollar Tree belongs to, has gained 3.5% in that period.The big question here is, where is this stock headed in the near term?
While media reports or rumors of major changes in a company's business prospects usually influence the movement of that company's share price, leading to immediate price movements, there are always certain fundamental factors that ultimately drive a buy-and-hold decision.
Earnings forecast revision
At Zacks, we evaluate changes in a company's future earnings estimates above all else because we believe the present value of future earnings streams determines the fair value of a stock.
Our analysis is essentially based on how sell-side analysts covering the stock are revising their earnings forecasts in light of the latest business trends. When a company's earnings forecast goes up, the fair value of its stock also goes up. And if a stock's fair value is higher than its current market price, investors are more inclined to buy the stock, resulting in an increase in its share price. For this reason, empirical research shows a strong correlation between trends in earnings forecast revisions and short-term stock price movements.
Dollar Tree is projected to post earnings of $1.05 per share for the current quarter, which would represent a +15.4% change from the year-ago period. Over the past 30 days, the Zacks Consensus Estimate has changed -1%.
The consensus earnings estimate for the current fiscal year is $6.58, indicating a change of +11.7% year over year. Over the past 30 days, this estimate has changed -0.7%.
Looking at the next fiscal year, the consensus earnings estimate is $7.75, which represents a +17.8% change from what Dollar Tree was expected to report a year ago. Over the past month, estimates have changed -0.6%.
The Zacks Rank, our proprietary stock rating tool that has an impressive outside-audited track record, effectively harnesses the power of earnings estimate revisions and is a more reliable indicator of near-term stock price movements. The magnitude of the recent change in the consensus estimate, along with three other factors related to earnings expectations, has earned Dollar Tree a Zacks Rank #4 (Sell).
The story continues
The chart below shows the evolution of the company's consensus EPS estimates over the next 12 months.
12 Month EPS
Revenue Growth Forecast
Revenue growth is arguably the best indicator of a company's financial health, but if a company can't grow its revenue, then nothing happens. After all, it's nearly impossible for a company to grow its revenue over the long term without growing its revenue. Therefore, it's important to know a company's revenue growth potential.
For Dollar Tree, the consensus sales estimate for the current quarter is $7.51 billion, indicating a change of +2.6% year-over-year. For the current and next fiscal years, estimates of $31.23 billion and $32.91 billion indicate changes of +2.1% and +5.4%, respectively.
Last reported results and surprise history
Dollar Tree reported revenue of $7.63 billion in its most recent quarter, up 4.1% from the same period a year ago. EPS for the period was $1.43, up from $1.47 a year ago.
Compared to the Zacks Consensus Estimate of $7.63 billion, reported revenues represented a surprise of -0.1%. EPS surprise was 0%.
Over the last four quarters, the company has surpassed EPS estimates just once, and the company has surpassed consensus revenue estimates just once during that period.
evaluation
No investment decision can be efficient without taking into account stock valuation. To predict the future price movement of a stock, it is important to determine whether the current price properly reflects the intrinsic value of the underlying business and the company's growth prospects.
Comparing the current value of a company's valuation multiples such as Price to Earnings (P/E), Price to Sales (P/S) and Price to Cash Flow (P/CF) with the company's historical values helps in determining whether the stock is fairly valued, overvalued or undervalued, while comparing a company with its peers on the basis of these parameters gives a good sense of the fairness of the stock's valuation.
The Zacks Value Style Score, a part of the Zacks Style Scores system, evaluates both traditional and non-traditional metrics, categorizes stocks into five groupings from A to F (A is better than B, B is better than C, etc.) to help identify whether stocks are overvalued, fairly valued or temporarily undervalued.
On this scale, Dollar Tree is rated an A, indicating that it is trading at a discount relative to its peers. To see the values of the valuation metrics that drove this rating, click here.
Conclusion
The facts discussed here, and many other information on Zacks.com, may help you decide whether the market buzz surrounding Dollar Tree is worth following, although its Zacks Rank #4 suggests it may underperform the overall market in the near term.
Want the latest recommendations from Zacks Investment Research? Download today: 7 Best Stocks for the Next 30 Days Click to get this free report.
Dollar Tree, Inc. (DLTR) : Free Stock Analysis Report
To read this article on Zacks.com click here.
Zacks Investment Research
