Dollar Tree Stock Up 5% in November – Time to Buy DLTR Stock?

The price of Dollar Tree stock is up 5% so far in November while shares are going up nearly 4% in pre-market stock trading action this morning ahead of the release of the company’s financial results covering the third quarter of 2021 – an event that is scheduled to take place on 23 November.

The firm’s decision to ramp up its share repurchase program to a total of $2.5 billion, up from a previous $1.05 billion its Board had authorized, has catalyzed the latest uptrend in DLTR stock despite some of the struggles that the firm is experiencing to keep its shelves stocked up amid the prevalent supply chain disruptions.

Meanwhile, on 20 October, the company held a nationwide event in which it planned to hire thousands of workers for the holidays. Both full-time and part-time positions will be offered within the organization as part of an ongoing effort to prevent labor shortages in an increasingly challenging environment.

Now that we are days away from the release of Dollar Tree’s third-quarter earnings report, what can be expected from this retail giant’s stock? In this article, I’ll assess the current price action and fundamentals of Dollar Tree stock to outline plausible scenarios for the fourth quarter.

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Dollar Tree Stock – Technical Analysis

Back in September when I last wrote about Dollar Tree, I highlighted that a double bottom formation was confirmed by the 29 September bounce that took place after the company announced that it had ramped up its share buyback program.

This has resulted in sizable gains for investors and traders as the price climbed from $100.5 back then to $113 per share this last Friday resulting in a 12.4% push.

Now, this uptrend may be experiencing the earliest stages of its exhaustion as indicated by DLTR stock’s momentum oscillators and positioning relative to its moving averages.

In this regard, the MACD has climbed to its highest level since December last year while positive histogram readings have been steadily declining. Meanwhile, the Relative Strength Index (RSI) just stepped out of overbought territory and this could be a signal that positive momentum is weakening for the stock.

It is also important to note that the price is currently trading 9% above its 200-day simple moving average. Even though this distance is not yet worrying, investors should keep an eye on how the price action behaves in the near future to identify the point at which the uptrend might reverse its course.

For the time being, the technical readings are pointing to a late-stage bull cycle in DLTR stock ahead of its earnings report.

Meanwhile, options prices for next week are pricing a 7% fluctuation in the price of Dollar Tree stock. Such a move, if it were to be bearish, would push the stock near its 200-day moving average.

Dollar Tree Stock – Fundamental Analysis

Last year, earnings for Dollar Tree experienced a sizable 27% jump amid an improvement in the firm’s operating profitability. For the next couple of years, analysts seem to be expecting that earnings will grow at a rate of around 12% per year – possibly on the back of higher margins.

On 28 September, Dollar Tree announced that it will be adding items priced above one dollar in all of its Dollar Tree Plus stores while it will be testing the same strategy in a selected group of its traditional Dollar Tree stock.

This would include items priced at $3 and $5 while it is also expected that the number of $1 products available will get smaller as inflation keeps moving higher – either temporarily or for longer than expected.

For Dollar Tree, that should result in higher prices and profit margins down the line and that is another reason why the price of the stock may have climbed in both October and so far in November.

At its current forward P/E ratio of 21x, Dollar Tree seems to be trading near its fair value based on its forecasted earnings growth. This creates room for a potential correction in the price of DLTR stock in the following weeks and the upcoming earnings date increases the risk of such a decline unless the firm manages to surprise analysts with its performance.

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