Is it time to plough into Dollar Tree - Preview of the week starting 24 Mar 2025

Public Holidays

Singapore, Hong Kong, China & the USA have no public holidays in the coming week.

Economic Calendar (24 Mar 2025)

Notable Highlights

• The most watched economic data for the coming week would be the Core PCE price index. This is one of the references used by the Fed for inflation. The result will impact the Fed’s interest rate decision.

• S&P Global Manufacturing PMI and S&P Global Manufacturing PMI will be released. An amount above 50 would suggest global growth in either sector. This would be a good indication for the global economy.

• CB Consumer Confidence is an important reference for consumption outlook. Sentiment can have more impact on consumption than statistics.

• New Home Sales is a good reference for the real estate.

• Durable Goods Orders is one of the indicators for market consumption. This can shed some light on the market outlook.

• Initial jobless claims will be announced. The Federal Reserve uses this as one of the key macro data references as it balances inflation and employment in the economy.

• Crude Oil Inventories can be seen as forward indicators of market demand and consumption. If the trend of excess inventories continues, demand erosion can lead to reduced production & weakened consumer spending.

Earnings Calendar (24 Mar 2025)

The most anticipated earnings releases for the week of March 24, 2025

I look forward to Lucid, Lululemon, Gamestop, McCormick, Jefferies and Dollar Tree earnings.

Let us look at Dollar Tree.

Description of business taken from QuickFS

Dollar Tree has a “Sell” rating for Technical Analysis. The Analysts’ Sentiment is “neutral”. The price target is $83.29 which suggests an upside of 24.78%. The stock price fell 46.9% from a year ago.

Revenue

• Growth Trend: Dollar Tree's revenue has grown significantly over the decade, increasing from $8.602 billion in 2015 to $30.604 billion in 2024. The 10-year compound annual growth rate (CAGR) for revenue is 14.6%, reflecting strong expansion.

• Key Milestones: Revenue growth was particularly notable in 2016 (80.2%) due to the acquisition of Family Dollar, with consistent growth in most years, peaking at 33.7% in 2017. However, there were slowdowns, such as a 3.5% decline in 2022 and modest growth of 3.2% in 2023.

• Competitive Advantage: The high revenue CAGR indicates Dollar Tree’s successful expansion through acquisitions and organic growth, leveraging its low-price model to capture a broad customer base in the discount retail sector.

Operating Profit

• Growth Trend: Operating profit grew from $1.040 billion in 2015 to $2.236 billion in 2023, before dropping sharply to $187 million in 2024. The operating margin has been volatile, peaking at 12.1% in 2015 and dropping to a low of 0.6% in 2024.

• Challenges: The significant decline in operating profit and margin in 2024 (-5.9% ROIC) suggests operational challenges, possibly due to rising costs, inflation, or integration issues post-acquisition.

• Competitive Advantage: Despite recent struggles, Dollar Tree maintained profitability in most years, reflecting its ability to scale operations. However, the 2024 drop raises concerns about cost management.

Earnings Per Share (EPS)

• Growth Trend: EPS increased from $2.90 in 2015 to $7.21 in 2023, before plummeting to -$4.55 in 2024. The 10-year EPS growth has been inconsistent, with a sharp decline of -192.8% in 2019 and a significant drop in 2024 (-163.1%).

• Volatility: EPS growth has been erratic, with peaks like 200.0% in 2017 and 151.9% in 2020, but also major declines, reflecting sensitivity to operational and economic factors.

• Competitive Advantage: The long-term EPS growth (prior to 2024) suggests Dollar Tree has been able to generate shareholder value, but the 2024 loss indicates potential challenges in maintaining profitability.

Price-to-Earnings (P/E) Ratio

• Valuation: The P/E ratio is negative at -13.7, reflecting the 2024 earnings loss. This indicates that the market may be pricing uncertainly about future profitability.

• 10-Year Median Returns: The 10-year median return on assets (ROA) is 6.0%, return on equity (ROE) is 18.0%, and return on invested capital (ROIC) is 8.0%, suggesting decent historical returns but with recent declines (e.g., -4.4% ROA in 2024).

• Competitive Advantage: The historical ROE and ROIC indicate efficient use of capital in prior years, but the negative P/E and recent returns highlight short-term challenges.

Free Cash Flow (FCF)

• Growth Trend: The EV/FCF ratio is 18.8, and the 10-year CAGR for FCF is 2.2%, indicating modest growth in free cash flow generation. FCF has been positive but not a standout metric compared to revenue growth.

• Capital Structure: The median debt/equity ratio is 1.1, and debt/assets are 0.4, suggesting a balanced approach to leverage.

• Competitive Advantage: While FCF growth is modest, Dollar Tree’s ability to generate positive cash flow supports its expansion strategy, including store openings and acquisitions like Family Dollar.

Other Key Metrics

• Gross Profit and Margin: Gross profit grew from $3.034 billion in 2015 to $9.352 billion in 2024, but the gross margin declined from 35.3% in 2015 to 30.5% in 2024. This suggests pressure on profitability, possibly due to rising costs or competitive pricing.

• Return on Invested Capital (ROIC): ROIC fluctuated significantly, peaking at 27.2% in 2015 and dropping to -5.9% in 2024. The 10-year median ROIC of 8.0% indicates moderate efficiency in capital use over the period.

• Competitive Advantage: Dollar Tree’s ability to maintain a gross margin of around 30% and a historically positive ROIC reflects its competitive pricing model and operational scale, though recent declines signal challenges.

Overall Assessment

Over the past 10 years, Dollar Tree has demonstrated strong revenue growth (14.6% CAGR), driven by the Family Dollar acquisition and its low-price retail model, which has allowed it to capture market share in the discount retail sector. Operating profits and EPS showed growth in most years but faced significant declines in 2024, reflecting operational or economic challenges. The company does not pay dividends, focusing instead on reinvestment, which has supported its expansion strategy. The negative P/E ratio and recent drops in ROIC and operating margin highlight short-term struggles, but historical metrics like ROE (18.0% median) and revenue growth underscore its competitive advantages, including a scalable business model and a strong presence in the value retail market.

The earnings revenue and EPS forecast are $8.24B and $2.19 respectively.

Given the above, I prefer to monitor the stock especially the dip in recent profitability. With the P/E ratio entering a negative region, I recommend caution. Does this represent the business or a wider market sentiment?

Market Outlook of S&P500 - 24 Mar 2025

S&P500 chart as of 22 Mar 2025

Volume tells of the momentum of the trend. The average volume is over 4.6 B, and the latest volume on 21st March 2025 is 9.6 B. This suggests a strong momentum for the trend.

Observations:

• The MACD indicator is about to experience a bottom crossover, a reversal from the downtrend to an uptrend.

• Moving Averages (MA). The MA50 line has started a downtrend, while the MA200 line is on an uptrend. This implies a downtrend in the mid-term and a bullish in the long term.

• Candle. The last candle is below the MA50 and MA200 lines, implying a bearish outlook for the medium and long term.

• The 3 Exponential Moving Averages (EMA) lines are showing a downtrend. Two of the EMA lines are about to converge and this implies a potential change from the current downtrend.

• Chaikin’s Monetary Flow (CMF) shows a downtrend (below the 0 line).

Using technical indicators and Moving Averages, Investing.com has a “Strong Sell” rating for the S&P 500 (using daily intervals). Fourteen indicators show a “Sell” rating, compared to only five with a “Buy” rating.

Here are the indicators’ details.

The candlestick patterns above point to a more “bearish” outlook.

With the above information, I lean towards a bearish outlook in the coming days though we can expect some recovery.

News and my thoughts from last week (24 Mar 2025)

In late 2024, Buffett’s Berkshire Hathaway amassed a $334 billion cash position after the firm became net-sellers of assets including the sale of 117 million Bank of America (BAC) shares, worth about $5.5 billion. - DailyHODL

“So we take these DoorDash loans, combine them, and create a whole new instrument where investors can bet on whether borrowers will pay off their Taco Bell Crunch Wrap Supreme within 12 months” - Dr Parik Patel

The US stock market concentration Bubble is BIBLICAL: The top 10 largest S&P 500 stocks reflect ~36% of the index market capitalization, just shy of a RECORD high. The biggest stock market cap is ~750 TIMES larger than the 75th percentile stock, above the Great Depression levels. - X user Global Markets Investor

DoorDash is now allowing customers to FINANCE their food delivery orders. This comes as US credit card debt hit a RECORD of $1.2 trillion and $2+ trillion of excess savings have been depleted. Are we in a consumer debt bubble? X user The KobeIssi Letter. Will this be revenue for one and delinquency for the other? Good deal?

DoorDash and Klarna have signed a deal where customers can choose to pay for food deliveries in interest-free instalments or deferred options aligned with payday schedules. X user Geiger Capital

The percentage of borrowers at least 60 days late on their car payments is at the highest on record - X user Unusual Whale.

A car is a need in the USA (for some areas).

G7 countries debt-to-GDP ratios in 2024: Japan: 255% Italy: 139% United States: 123% France: 112% Canada: 105% United Kingdom: 104% Germany: 64% - X user Global Markets Investor

China has emerged as a major threat to Germany's car industry and is also putting the chemicals and engineering sector under pressure. - DW News

Creditors owed around US$150 billion by defaulted Chinese developers always stood to get just pennies back, but many are finding that even after a debt plan is agreed, it’s not necessarily a done deal. A growing number of builders that passed a seemingly key stage of restructurings in getting court approval for their plans are heading back to square one, after fresh liquidity problems amid a prolonged property crisis made it harder for them to honour their promises. - Business Times SG

Trump is drafting an executive order that would rely on funding from a US Trade Representative (USTR) proposal to levy fines of up to US$1.5 million on China-made ships or vessels from fleets that include ships made in China. Those potential port fees have limited the availability of ships needed to move agriculture, energy, mining, construction and manufactured goods to international buyers - Business Times SG

US consumer serious delinquency rates (90+ days) in credit card debt jumped to 11.4%, the highest in 13 YEARS. They are rising at the pace seen in the Great Financial Crisis of 2007-2009 - X user Global Markets Investor

Viral video shows BYD mega factory in China that's bigger than San Francisco, 10 times the size of Tesla Gigafactory | Trending - Hindustan Times

Have you seen the 16,000-acre BYD factory in Zhengzhou? And it is still growing.

Will America's tariffs leave them in isolation? Countries like China would be forced to build everything. Give them a few years and they can be the manufacturing capital. What if Canada, Mexico and Europe trade with China, isolating the USA?

U.S. auto loan applications are being rejected at the highest rate in more than a decade - BarChart

Aldi has been growing very quickly in the United States. The discount grocery chain plans to open over 225 new stores in 2025 as part of a broader five-year US growth plan. There are closures and openings. - The Street.

Liner shipping profits are forecast to slide by more than 80% this year. - Splash247

Chinese tech giant Baidu Inc has unveiled its latest large language model Ernie 4.5 and deep-thinking reasoning model Ernie X1, both of which are now freely accessible to individual users. - China Daily

Berkshire sold his real estate holdings. Is he seeing challenges in the industry? - Economic Times

U.S. Annual Interest Expense went from $500 Billion in 2021 to $1.2 Trillion in 2024. Probably Fine - BarChart

My Investing Muse (24 Mar 2025)

Layoffs & Closure news

Financial distress in the trucking and logistics sector over the last three years has forced thousands of shipping companies to cease operations in the Great Freight Recession. About 88,000 trucking companies and 8,000 freight brokerage firms went out of business in 2023, data from Freight Caviar revealed. The trucking sector reported a net loss of about 10,000 carriers in the first half of 2024. - The Street

Home-grown electronics firm Creative Technology has retrenched about 40 staff, or 14 per cent of its workforce, as the tech layoff wave continues its rampage, The Straits Times has learnt. - Straits Times

Volkswagen's Audi to cut 7,500 jobs in administration, development by 2029 - Reuters

Amazon is set to cut around 14,000 managerial positions by early 2025, aiming to save between $2.1 billion and $3.6 billion annually. This reduction marks a 13% drop in Amazon’s global management workforce, shrinking the number of managers from 105,770 to 91,936. - TechStartups

Recession concerns grow as tariffs cut, government layoffs, funding cuts and immigration restrictions add to the burden of the economy. - Economic Times

When On the Border filed for Chapter 11 bankruptcy on March 5, the company immediately closed nearly 80 locations. That's almost two-thirds of its stores, according to the Chapter 11 filing in U.S. Bankruptcy Court for the Northern District of Georgia. - The Street

The above are some of the layoff and closure news. Let us monitor this as this can lead to market-wide concerns.

Is Southeast Asia under financial duress?

Here are some news that hit the headlines in Southeast Asia.

INDONESIA BOURSE HALTS STOCKS TRADING AS JCI INDEX FALLS 6% - Investing.com

Fears of a slowing economy and uncertainty over President Prabowo Subianto’s recent policies rattled investors, sparking a market sell-off that triggered a trading halt on Tuesday (Mar 18) as the benchmark index plunged. - Business Times SG

The Thai stock gauge has tumbled more than 16 per cent in 2025, making Thailand the world’s worst performer among 92 indexes tracked by Bloomberg. Over the past 12 months, foreigners pulled out US$4.2 billion, the most across Southeast Asia. - Straits Times

Mass layoffs have affected more than 60,000 workers across 50 companies in Indonesia between January and February 2025, according to the Labour Party and the Indonesian Workers’ Confederation (KSPI). - The Star (MY)

Are investors exiting US stocks?

Here are some news about investors rotating out of the US market.

Fund Managers just rotated OUT OF U.S. Stocks at the fastest pace in history - BarChart

Hedge funds are selling US equities at the fastest rate in MONTHS: US stocks have been sold by institutional investors for the 4th consecutive week and in 9 out of the last 10. Index and ETF products accounted for 45% of overall selling. X user Global Markets Investor

Foreigners are DUMPING US equities at nearly a RECORD pace: US stock funds saw over $5 BILLION in net outflows last week from overseas investors, the third-largest withdrawal in HISTORY. This was only below the 2020 CRASH and the March 2023 Banking Crisis. Notably, foreigners held a MASSIVE $16 trillion of US stocks as of Q4 2024. In other words, there's more selling to come over time if uncertainty persists. This is MASSIVE. X user Global Markets Investor

While there are various reasons to sell, I treat these as cautionary in this market.

My final thoughts

It is time to consider our available options, including reviewing our expenditures, income, and savings. Let us spend within our means, invest with what we can afford to lose, and avoid leverage. I would review my holdings and cut some losses with businesses losing their competitive advantages. I would also consider some hedging and adding some defensive positions.

Let us do our due diligence before we take up any positions. Let us have a successful week ahead.

@TigerStars

$Dollar Tree(DLTR)$

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