Dollar Tree’s Rise and the Activist Investor Mantle Ridge
Dollar Tree, Inc. is a discount variety retail store operator that sells items for $1 or less. The company has over 15,000 stores in the United States and Canada operating under the Dollar Tree and Family Dollar brand names. It offers a wide range of general merchandise in numerous categories, including housewares, holiday goods, health and beauty care, stationery, books, candy, discount canned merchandise, personal accessories, toys, gifts, party goods, and other consumer items.
The company’s business model is built on offering extreme discounts to attract financially disadvantaged or frugal customers. However, the big risks to this business model are supply chain disruptions, shipping delays, and inflation. These factors pose the question of whether it will be possible for anyone to sell goods for $1 or less and still earn a profit.
Recently, activist investor Mantle Ridge has invested $1.8 billion in Dollar Tree. This investment is expected to help strengthen the company’s lagging Family Dollar chain. To assist with this goal, Mantle Ridge is enlisting Richard Dreiling, who previously served as CEO of rival Dollar General. Additionally, Mantle Ridge wants Dollar Tree to sell higher-priced items at more stores.
Mantle Ridge believes these moves will dramatically increase Dollar Tree’s valuation. The company has a market cap of $29.56 billion and trades on average 3.76 million shares a day. Over the last few days, volumes have been three times that amount as investors think this news bodes well for higher prices.
Stock Analysis
In this weekly stock study, we will analyze the following indicators and metrics:
- Wall Street Analysts’ Estimates: We look at the estimates provided by top Wall Street analysts to understand what they think about Dollar Tree’s future performance.
- 52-week high and low boundaries: We examine the company’s historical price data to identify potential support and resistance levels.
- Vantagepoint A.I. Forecast (Predictive Blue Line): This proprietary indicator uses artificial intelligence and statistical correlations to determine the value zone of an asset.
- Neural Network Forecast: This indicator predicts future strength and/or weakness in the market by analyzing massive amounts of data.
Using VantagePoint Software
We use VantagePoint Software, which combines artificial intelligence and intermarket analysis to provide traders with a comprehensive view of the market. The software’s predictive blue line and neural network indicators help us identify trend forecasts, value zones, and statistically sound trading opportunities.
In studying the chart above, we pay close attention to the relationship between the black line (a simple 10-day moving average) and the predictive blue line. The predictive blue line is a more accurate representation of an asset’s value zone and trend direction.
Trading Suggestion
Based on our analysis, we suggest buying Dollar Tree when the price breaks back into the recent gap between $115 and $121. While the trend is clearly up, we expect the stock to revert to its value zone identified by the predictive blue line. We also caution investors that earnings will drive the price of Dollar Tree, and everything else is noise.
The huge risk in DLTR’s business model is supply chain breakdowns and shipping delays. However, even with this risk, the company will do over $26 billion in sales. It has beaten Wall Street estimates in nine out of ten last quarters, which bodes well for its future performance.
Let’s Be Careful Out There!
Remember that trading involves a high degree of risk, and it is not prudent or advisable to make trading decisions beyond your financial means or involve trading capital that you are not willing and capable of losing. VantagePoint’s marketing campaigns do not constitute trading advice or an endorsement or recommendation by VantagePoint AI or any associated affiliates of any trading methods, programs, systems, or routines.
Disclaimer
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