Free Trial

Dollar Tree Won’t Be Trading At a Discount For Much Longer

Dollar Tree stock price

Key Points

  • Shares of Dollar Tree experienced a viscous sell-off through much of September. 
  • However, they appear to have put in a low and have been rallying for the past fortnight. 
  • Goldman Sachs sees additional upside from here, and further gains are expected. 
  • 5 stocks we like better than Dollar Tree

Despite hitting all-time highs last year as one of the best stocks to own during a recession, Dollar Tree Inc NASDAQ: DLTR has been on the defensive since the summer. Until this past August, their shares had held an almost unmatched track record of rallying before, during, and after the pandemic. But a poor end to the summer saw them drop more than 30% into October, which put them back trading at 2017 levels. 

While you could argue shares had been consolidating for the first half of this year, they were starting to run out of steam by the second quarter, and August's earnings report confirmed this. Despite topping expectations on the headline numbers, Dollar Tree's once stellar margins plunged, forcing management to issue forward guidance below what analysts had expected. 

Sharp Sell-off means Opportunity 

There's nothing quite like a sudden congregation of dark clouds on the horizon to make even the most bullish investors run for cover, and so it was that many rushed to lock in gains and take their money off the table. For context on just how aggressive that round of selling was, consider this: the stock's relative strength index, a measurement of how overbought or oversold it is, was in the low teens until the last week of September, which indicates it was extremely oversold. However, since hitting a low on October 2, Dollar Tree shares have steadily risen and are suddenly up 12%

It's starting to look like the doom and gloom scenario that spooked investors was a bit overdone, and if that's the case, readers can expect a sharp recovery in Dollar Tree stock. At least, this was the message from the team at Goldman Sachs yesterday, who spoke bullishly to the company's outlook as part of their upgrade on Dollar Tree shares from Neutral to a Buy rating. 

They see Dollar Tree continuing to capture market share, supported by improving traffic trends and a sticky customer base. Another key driver they see supporting the long side is the improving discretionary cash flow outlook for lower and middle-income consumers heading into next year. Together, you've got the perfect store for a discount retailer like Dollar Tree, so the company's earnings are expected to exceed the current estimates. 

The squeezed margins, which did so much damage over the summer, will be supported by the additional revenue growth and a drop in expenses due to factors like lower shipping costs, for example. Goldman sees them delivering an annual earnings growth rate of 19% through 2026, putting them ahead of their peer group

20% Upside for Dollar Tree Stock 

fresh price target of $137, implying an upside of about 20% from where shares closed on Tuesday, should be very doable, as this would only have them back trading at the lower end of their pre-selloff range. If shares were able to tread water and consolidate there, they'd form a solid line of support for a further recovery towards the $150 mark. 

While the momentum is currently with the bulls, much will depend on Dollar Tree's next earnings report when it comes to the stock's broader trend into and through 2024. This is due in the second half of November, and analysts will be watching closely to see a recovery in the company's margins. They'll also want to see an uptick in revenue, which has struggled so far this year to top the record $7.7 billion that was reported in January. Considering shares are currently trading at 2017 levels when Dollar Tree's revenue was two-thirds of what it is today, you can't help feeling that the risk/reward is pretty attractive right now. 

With Goldman Sachs now in the bull's corner, we can expect their shares to continue rallying into November as hype builds around the potential for a comeback. If you're feeling brave, this is an interesting time to consider getting involved, as you'd have the option to take some gains off the table before the actual report while still holding some through it in case there's a massive upside surprise. 

Should you invest $1,000 in Dollar Tree right now?

Before you consider Dollar Tree, you'll want to hear this.

MarketBeat keeps track of Wall Street's top-rated and best performing research analysts and the stocks they recommend to their clients on a daily basis. MarketBeat has identified the five stocks that top analysts are quietly whispering to their clients to buy now before the broader market catches on... and Dollar Tree wasn't on the list.

While Dollar Tree currently has a "Moderate Buy" rating among analysts, top-rated analysts believe these five stocks are better buys.

View The Five Stocks Here

Beginner's Guide to Pot Stock Investing Cover

Click the link below and we'll send you MarketBeat's guide to pot stock investing and which pot companies show the most promise.

Get This Free Report
Sam Quirke
About The Author

Sam Quirke

Contributing Author

Technical Analysis

Like this article? Share it with a colleague.

Companies Mentioned in This Article

CompanyMarketRank™Current PricePrice ChangeDividend YieldP/E RatioConsensus RatingConsensus Price Target
Dollar Tree (DLTR)
4.6702 of 5 stars
4.67 / 5 stars
$104.17-3.0%N/A-22.69Moderate Buy$142.45
Compare These Stocks  Add These Stocks to My Watchlist 

Featured Articles and Offers

4 Best Tech Stocks to Own in 2024

4 Best Tech Stocks to Own in 2024

In this video, we explore the recent selloff and rotation of investments from NVDA to other Magnificent 7 stocks. Our analysts highlight four standout stocks—Amazon, Apple, Meta, and Alphabet.

Related Videos

NVIDIA Tops Microsoft and Apple for Most Valuable Company
3 Strong Buy Stocks for a Summer Surge
Buy or Bail? Stock Upgrades and Downgrades

Stock Lists

All Stock Lists

Investing Tools

Calendars and Tools

Search Headlines