A look at Dollar Tree

Written By: James Hixson and Patrick Jackson for ICS 601 Ball State University

This paper is in response to an assignment which we a had to pick a company from a list that we felt would provide the best return on investment. The company we choose is Dollar Tree Inc.

With the money intended to be invested in a particular stock, our company Investment Four choose to buy in to Dollar Tree, Inc. (DLTR, NASDAQ). We, as a team, choose to follow DENTSPLY International, Dollar Tree, eBay, Electronic Arts, ,and Expedia. Several of these companies increased in value during our observation period.

Dollar Tree is a Fortune 500 company that operates a chain of discount stores in the United States.  Items available include everyday household items such as cleaning products, glass ware, and seasonal decor to food items.  Every piece of merchandise sold in the store is priced at $1.00 (Chilton, 2011).  According to Brian Nichols of Seekingalpha.com, Dollar Tree has been one of the fastest growing chains in the last 5 years due to its simplistic secret behind its success, saving money for the consumers.  Since the beginning of 2011, Dollar Tree has opened 159 new stores, 76 just in the second quarter (Nichols, 2011).  Currently, Dollar Tree operates over 4000 stores in 48 contiguous U.S. states. (“The Story of Dollar Tree”, 2011)

Investment Four choose Dollar Tree, however, for two reasons: the first being they gained the most value over the observation period and second that Dollar Tree showed a very low level of volatility measured by Beta. From August 11^th, 2011 to the last trading day Friday November 11th, 2011, Dollar Tree gained $11.92 starting at 66.75 and ending at 78.67 (Google Finance,2011).  The Beta for that period of time was .38 meaning that the price did not have wide swings in value.  Also looking back in time over the last year, Dollar Tree has been on the steady rise. Currently their market value is just over nine billion dollars.

According to Dollar Tree’s latest quarterly report, released to the public on August 18 2011, the company had a healthy quarter of growth.  For the quarter ending on July 30, Dollar Tree showed an increase in revenue of $146.5 million dollars from the same time last year.  This resulted in a net income of $94.9 million for the quarter, betting last years quarterly profits of $78 million by $16.9 million.   

            This growth is not only a result of their quality products at a low price, but Dollar Tree’s ability to hold a positive image to their stockholders and customers.  Currently, Dollar Tree is partnering with a non-profit organization Operation Homefront, where emergency finance and assistance is provided to families of service members and “wounded warriors”.  Dollar Tree is helping this organization with their launch of the 2011 Holiday Toy Drive.  In the past years, they have collected millions of toys donated from customers to give to Operation Homefront.  On top of the toy drive, Dollar Tree also helps with a monetary donation to the organization.  These actions reflect positively on the public (“Operation Homefront”, 2011).     

If Investment Four were to invest $10,000 at the opening bell on Monday morning November 14^th, 2011, we would receive 127 shares of the company after broker fees.  Over the last year, Dollar Tree has seen an increase in value of 46%. We believe that the company has the potential to continue this trend.  Due to the Holiday season approaching, we trust that next quarter will be profitable a time for Dollar Tree.  Investment Four hopes to see an increase in value similar to that of the current year well into next year as the economy improves but consumers still try to keep spending down.  Over the next six months, we  plan to see a 20% growth in current value.  

References

(2011). Form 10-q quarterly report filed aug 18, 2011 (0-25464 ). Retrieved from Dollar

Tree website: http://www.dollartreeinfo.com/investors/global/secfiling.cfm?filingID=935703-11-40

Chilton , A. (2011, November 11). Morgan Stanley Made the Right Call, Dollar Tree 1.8%

Lower (dltr). Retrieved from http://www.fnno.com/story/analyst-reflections/331-morgan-stanley-made-right-call-dollar-tree-18-lower-dltr-analyst-reflections

Nichols, B. (2011, November 13). 6 stocks worth buying before earnings: Nov.14 - 18 .

Retrieved from http://seekingalpha.com/article/307520-6-stocks-worth-buying-before-earnings-nov-14-18

Operation Homefront. (2011). Retrieved from

http://www.dollartree.com/custserv/custserv.jsp?pageName=OperationHomefront

The Story of Dollar Tree 50+ Years in the Making. (2011). Retrieved from

http://www.dollartreeinfo.com/about-us/history/