The Dollar Store Wars - Where Everything But The Stock Is A Dollar

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Includes: BIG, BURL, COST, DG, DLTR, FRED, OLLI, PSMT, TUES, WMT
by: Wall Street Survivor

"Can I get a price check on this item" is a phrase used by most when shopping, but it seems kind of redundant to be asking at the dollar store. It is after all a DOLLAR STORE. But when looking at Dollar Tree (NASDAQ:DLTR), it is good to look at the trading range and price targets of this bullish discount retailer.

A 52-week trading range has this stock between $66.01 and $116.65, and share prices as of trading close on 6/28/18 were at $85.01. For the low price of 85 rubber ducks, or kitchen towels, or cans of dusty off-brand soda, you can own a stock that has a price target of a blended estimate of ~$103 across most analysts.

A 15% upside on stronger performance

A stock that's currently up 21% for the year and seeing EPS growth of 28%, the increased value from this stock comes from the potential for M&A activity. Credit Suisse recently said that investors should hold the stock, and reiterated an Outperform rating, and even raising its price target from $93 to $99 a share.

Are people really leaving with shopping carts full of dollar items?

DLTR is not only its own brand but also Family Dollar as well, and Dollar General (NYSE:DG) tried to unsuccessfully bid for the brand in 2014. There are some synergies should DG end up actually successfully bidding for Family Dollar and buying it, but at any point DLTR could sell the Family Dollar business, bolstering a valuation of the stock and putting it near or above analyst price targets. Family Dollar is bringing down the multiple attached to DLTR, so shedding the excess weight could make sense.

Dollar Tree as a whole has seen sales growth of roughly 5% per quarter, and average sales growth of 20% plus over the past 5 years.

Couple this with a slight increase in cost of living, and the general real estate strategy of placing dollar stores (industry wide) in lower income neighborhoods, along with cheaper real estate and better terms in these less-than-desirable neighborhoods, you have a winning combination for strong growth.

How you make money

While DLTR doesn't pay dividends, look to hold it for the long term for stock price appreciation, or play the related stocks in the discount retailer sector: Big Lots (NYSE:BIG), Burlington Stores (NYSE:BURL), Costco (NASDAQ:COST), Dollar General, Fred's (NASDAQ:FRED), Ollie's Bargain Outlet Holdings (NASDAQ:OLLI), PriceSmart (NASDAQ:PSMT), Tuesday Morning (NASDAQ:TUES), and Walmart (NYSE:WMT).

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.