The past six months have been a windfall for Dollar Tree’s shareholders. The company’s stock price has jumped 57.3%, hitting $114 per share. This was partly thanks to its solid quarterly results, and the performance may have investors wondering how to approach the situation.

Is now the time to buy Dollar Tree, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is Dollar Tree Not Exciting?

Despite the momentum, we're sitting this one out for now. Here are three reasons why you should be careful with DLTR and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last six years, Dollar Tree grew its sales at a sluggish 1.1% compounded annual growth rate. This fell short of our benchmarks.

2. Revenue Projections Show Stormy Skies Ahead

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Dollar Tree’s revenue to drop by 21.7%, a decrease from This projection doesn't excite us and implies its products will see some demand headwinds.

3. Previous Growth Initiatives Haven’t Impressed

Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Dollar Tree historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.8%, somewhat low compared to the best consumer retail companies that consistently pump out 25%+.

Final Judgment

Dollar Tree’s business quality ultimately falls short of our standards. Following the recent surge, the stock trades at 21.3× forward P/E (or $114 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. We’d recommend looking at the most entrenched endpoint security platform on the market.

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