Is Dollar Tree's stock as cheap as its prices?
The company posted yet another impressive quarter of profit, sales and operating margin growth Tuesday. Dollar Tree's third-quarter earnings rose 58%, beating Street estimates by an almost embarrassing (for the analysts) 10 cents a share. Sales rose 12%, exceeding expectations by more than $4 million and same-store sales -- a key retailer metric -- grew 6.5%. The company has a nice habit of exceeding analysts' average expectations, by the way, having done so for more than eight consecutive quarters, according to Thomson Reuters.
And yet shares still look compelling on a relative valuation basis. The stock goes for less than 14 times forward earnings, offering a discount of nearly 25% to the S&P 500 ($INX) and 10% to its own five-year average, according to Thomson Reuters. Meanwhile, by the price-earnings-to-growth (PEG) ratio, which measures how fast a stock is rising relative to its growth prospects, shares trade at a 50% discount to the S&P and a 15% discount to their own five-year average.
Analysts' average price target stands at $58.53, making the implied upside 15% in the next year or so. Of course, if Dollar Tree keeps its string of blowout quarters alive, it probably won't take that long.