It is common knowledge around Wall Street that when a piece of information makes it to the mainstream financial media outlets, it is probably too late for retail investors to consider taking action on the news. Today, this seems to be the case for shares of Dollar Tree Inc. (NASDAQ: DLTR), especially after some signs of potential institutional accumulation have been identified.
More than that, several tailwinds are acting in favor of Dollar Tree’s business today, anywhere from restructuring inside the business in the face of new economic pressures and broader macro trends working in favor of the company’s value proposition. As a hedge for inflation fears coming from new potential trade tariffs, some investors may have been positioned into Dollar Tree stock before the wave is here, as most know if it makes it to the news, then it’ll be too late.
Others in the market, such as Wall Street analysts, recognize the potential upside in Dollar Tree shares today. This is despite others in the retail sector, like Target Co. (NYSE: TGT), showing recently bearish price action after posting a somewhat disappointing quarter. The willingness to go against the trend makes it more important for investors to consider a second look at today’s ratings and price targets on Dollar Tree shares.
Accumulation Signs: Why Dollar Tree Stock Deserves Attention Today
When looking into the volume data for Dollar Tree stock, it would become evident to investors that most of the volume for the past 12 months took place around the $67 level. Considering the length of time the stock also spent near that level, it would be safe to assume that this behavior could be the result of potential accumulation.
But it's different than the type of accumulation that markets are used to, not this one. This one is one of those slow "iceberg" accumulations, where investors might catch a glimpse of volume for one day but miss all the other big blocks of buy orders that came before or after it. Luckily for investors today, some buyers were caught in action.
One of them is State Street, which decided to boost its holdings in Dollar Tree stock by as much as 6.8% as of November 2024, accumulating a position as big as $662.9 million today, or 4.3% ownership in the company. Another big buyer came through EdgePoint Investment Group, which boosted its Dollar Tree position by 0.5% to net them $487.9 million.
Now that the stock trades at a dismal 48% of its 52-week high, some investors might say that it is cheap for a reason, and while oftentimes this would be a true statement, it is not the case for Dollar Tree stock today. There are plenty of tailwinds to justify a potential buy in this name, just as these institutions did recently, here are some of them.
First, everyone deemed the business model obsolete during high inflation rates in the United States, a threat that could squeeze the company's margins significantly. However, management has pinpointed the true source of these falling margins and attributed them to Family Dollar, an underperforming arm of Dollar Tree that is now being considered for sale.
If and when management decides to spin off this arm, margins are expected to see an immediate boost, and so will earnings per share (EPS). More than that, Dollar Tree is now acquiring 90 Cent stores in bankruptcy with attractive discounts on their leases. These assets will boost Dollar Tree's book value when they are marked to market.
The company's latest investor presentation shows that foot traffic and revenue per square footage are on the rise, meaning that despite the bearish forecasts, customers are still finding enough value to justify more trips to Dollar Tree locations.
Wall Street Backs Recent Dollar Tree Stock Buys: Here's How
Lately, the sentiment around Dollar Tree stock has improved, even in the middle of what could be deemed a terrible year in terms of price action in the company. A consensus price target of $87.5 from Wall Street analysts would imply a 20% upside from today’s price.
Then there’s the most recent rating from Evercore, with a valuation of up to $92 a share on Dollar Tree stock. The stock would have to rally by as much as 26% from where it trades today to prove these outliers right, justifying the recent institutional purchases.
To back these upside calls, analysts have projected up to $1.19 in EPS for the next 12 months in Dollar Tree stock, which, compared to today’s $0.67 level, represents a massive jump of 78%. As stock valuations are mainly driven by EPS and their growth rates, investors can see how double-digit rallies could be only the beginning.
More than that, the wild card regarding the Family Dollar spinoff can be the definitive factor unlocking higher prices in the coming quarters, something investors need to pay special attention to as the company gears up to release its financial quarter soon.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
