Dollar Tree Stores (DLTR) Is Today's Roof Leaker Stock

Editor's Note: Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of TheStreet, Inc. or any of its contributors including Jim Cramer or Stephanie Link.

Trade-Ideas LLC identified Dollar Tree Stores ( DLTR) as a "roof leaker" (crossing below the 200-day simple moving average on higher than normal relative volume) candidate. In addition to specific proprietary factors, Trade-Ideas identified Dollar Tree Stores as such a stock due to the following factors:

  • DLTR has an average dollar-volume (as measured by average daily share volume multiplied by share price) of $167.6 million.
  • DLTR has traded 1.1 million shares today.
  • DLTR is trading at 2.59 times the normal volume for the stock at this time of day.
  • DLTR crossed below its 200-day simple moving average.

'Roof Leaker' stocks are worth watching because trading stocks that begin to experience a breakdown can lead to potentially massive losses. Once psychological and technical resistance barriers like the 200-day moving average are breached on higher than normal relative volume, the stock may then be subject to emotional selling from investors that can continue to drive the stock lower. Regardless of the impetus behind the price and volume action, when a stock moves with weakness and volume it can indicate the start of a new, potentially dangerous, trend.

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More details on DLTR:

Dollar Tree, Inc. operates discount variety stores in the United States and Canada. Its stores offer merchandise at the fixed price of $1.00. DLTR has a PE ratio of 19.5. Currently there are 13 analysts that rate Dollar Tree Stores a buy, no analysts rate it a sell, and 4 rate it a hold.

The average volume for Dollar Tree Stores has been 2.8 million shares per day over the past 30 days. Dollar Tree Stores has a market cap of $11.3 billion and is part of the services sector and retail industry. The stock has a beta of 0.34 and a short float of 2% with 1.30 days to cover. Shares are down 2.5% year-to-date as of the close of trading on Wednesday.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

TheStreetRatings.com Analysis:

TheStreet Quant Ratings rates Dollar Tree Stores as a buy. The company's strengths can be seen in multiple areas, such as its revenue growth, growth in earnings per share, increase in net income, notable return on equity and good cash flow from operations. Although no company is perfect, currently we do not see any significant weaknesses which are likely to detract from the generally positive outlook.

Highlights from the ratings report include:
  • The revenue growth came in higher than the industry average of 5.7%. Since the same quarter one year prior, revenues slightly increased by 7.2%. This growth in revenue appears to have trickled down to the company's bottom line, improving the earnings per share.
  • DOLLAR TREE INC has improved earnings per share by 13.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, DOLLAR TREE INC increased its bottom line by earning $2.75 versus $2.70 in the prior year. This year, the market expects an improvement in earnings ($3.14 versus $2.75).
  • The net income growth from the same quarter one year ago has exceeded that of the S&P 500 and the Multiline Retail industry average. The net income increased by 3.6% when compared to the same quarter one year prior, going from $133.50 million to $138.30 million.
  • Current return on equity exceeded its ROE from the same quarter one year prior. This is a clear sign of strength within the company. Compared to other companies in the Multiline Retail industry and the overall market, DOLLAR TREE INC's return on equity significantly exceeds that of both the industry average and the S&P 500.
  • Net operating cash flow has significantly increased by 53.28% to $198.20 million when compared to the same quarter last year. In addition, DOLLAR TREE INC has also vastly surpassed the industry average cash flow growth rate of -71.84%.

STOCKS TO BUY: TheStreet Quant Ratings has identified a handful of stocks that can potentially TRIPLE in the next 12 months. Learn more.

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