Dollar Tree Stock Hits a Pivotal Point, Can It Continue?

Key Points

• Despite all of the risks surrounding the retail sector, Dollar Tree stock shows potential of reaching a new ceiling in the coming months. 
• Management has set up the next quarter to be a relatively easy beat from guidance, and Wall Street knows it. 
• With massive year-end EPS growth, institutional buyers decided to get in ahead of the action.

It's no secret that the retail sector in the U.S. stock market has recently taken a backseat. Whether it's because tariff risks pose a major hurdle for most companies in the industry or geopolitical conflicts in the Middle East draw attention to some of the leading technology and defense firms, today’s market shows little interest in “boring” retail names.

That’s exactly why investors should start considering them, as they might gain an edge by exploring what others overlook today (but might notice tomorrow). In fact, one particular name stands out in its position amid these perceived risks and in its recent price movement, making it a potential candidate for increased attention. 

The stock is Dollar Tree Inc. NASDAQ: DLTR, a diversified retail company in the United States that serves consumers when inflation is a primary concern for budgets. Despite some investors turning away from Dollar Tree because of this business model, brewing factors behind the scenes suggest that this could soon change.

A Changing Environment Favors Dollar Tree

In the past quarter, the U.S. inflation rate has decreased notably, leading traders to speculate that the Federal Reserve may lower interest rates by September 2025, as indicated by the popular FedWatch tool. This could be seen as an acknowledgment that there may be no need to hold a negative outlook on Dollar Tree and its margins in the future. However, concerns about the ongoing impact of tariffs on Dollar Tree remain a significant consideration.

According to the latest quarterly financial press release, the company’s management has guided toward comparable net sales growth of 3% to 5% for the second quarter of 2025. Although lower than the first quarter’s growth, this 5.4% guidance is not as bad as markets may have anticipated, considering all the outstanding economic risks.

At the same time, management has also guided for a 45% to 50% decline in earnings per share (EPS) for the second quarter of 2025, but the market appears to be reacting positively to what should have been viewed as bad news. Dollar Tree stock has rallied by 41.5% over the past quarter alone, and there is a good explanation for that.

By guiding on such weakening EPS declines, Dollar Tree management has effectively set up these projections at a very conservative level, which makes beating them all the easier if there is to be a trade deal agreement between the United States and China.

Dollar Tree Stock Hits Crossroads

Now that Dollar Tree stock has reached 90% of its 52-week high, the question is whether it can continue on an upward path. Looking at the chart, the next target appears to be the $104 to $105 per share range, which has historically served as a consolidation zone where investors might pause to reevaluate.

That area may not leave many upsides for those considering a buy-in of Dollar Tree stock today, that is, until they realize who is behind this rally altogether. Institutional buyers from T. Rowe Price Investment Management decided to build up a stake worth up to $750.3 million as of mid-May 2025.

This is not a position that institutions are likely to unwind anytime soon, as most of the mandates governing their investment practices limit the timelines for entering and exiting positions, leading to the assumption that this might be a multi-quarter-long position.

Then there’s the bearish side of the equation. Over the past month, up to 7.9% of Dollar Tree stock’s short interest has declined, indicating a clear sign of bearish capitulation as these positive factors begin to stack up for Dollar Tree. It seems that, even in a world ridden with risks, there is no reason to stick around and watch Dollar Tree stock fall.

When it comes to more fundamental catalysts coming to Dollar Tree, investors can consider where Wall Street analysts are now forecasting EPS to go for the fourth quarter of 2025. It looks like these projections are somewhat assuming that tariffs won’t be in the picture anymore therefore a $2.38 in EPS is now to be expected.

Compared to today’s reported $1.26 in EPS, these forecasts call for up to 88.9% in earnings growth, justifying a new potential ceiling for the stock to be hit. Despite what the media may say about retail stocks like Dollar Tree, this is a name investors should keep around during trade negotiations because the “smart money” has likely figured out this is a winner.