Is Dollar Tree stock a buy as shares rally 16% on additional buyback?
- Dollar Tree shares spiked more than 16% on Wednesday as consumer spending continued to improve.
- The company approved an increase in its share repurchase authorisation of $1.05 billion.
- The buyback program now has an outlay of $2.5 billion including the previously approved $1.45 billion.
On Wednesday, Dollar Tree Inc. (NASDAQ:DLTR) shares spiked more than 16% after approving an additional $1.05 billion for the buyback program. The company’s total buyback outlay now stands at $2.5 billion including the previously approved $1.45 billion for repurchases.
The company is living up to its goal of keeping a disciplined capital allocation strategy that balances returning capital to shareholders and reinvesting funds for business growth.
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The company is also planning to introduce price points above $1.00 across all Dollar Tree Plus stores, while also testing additional price points above $1.00 in legacy Dollar Tree stores.
Dollar Tree looks undervalued
From a valuation perspective, Dollar Tree shares trade at compelling trailing and forward P/E ratios of 15.77 and 11.98, respectively. As a result, value investors could find the stock an attractive option for their portfolios.
Moreover, with analysts expecting its earnings per share to increase by nearly 63% this year before rising by a further 13.25% next year, growth investors could also begin to show interest in the stock.
In addition, the stock is down more than 6% this year, thereby underperforming the S&P 500 index. As such, it has a lot of ground to cover before catching up with the market.
Can the rebound continue?
Technically, Dollar Tree shares appear to have recently bounced off the trendline support in the intraday chart to rally towards the 100-day moving average. Moreover, the stock also appears to have surged closer to the overbought conditions of the 14-day RSI.
Therefore, it could experience a slight pullback before continuing the rally. Therefore, investors can target temporary pullback profits at $93.07, or lower at $84.44, if the price declines significantly.
On the other hand, if the stock surges above the 100-day MA, it could find resistance at $106.40 or higher at $116.25.
Wait for a support retest
In summary, although Dollar Tree’s buyback program is exciting to investors, Wednesday’s sharp spike could create an opportunity for a pullback.
Therefore, it may be best to wait for the stock to retest the current support levels before buying DLTR shares.
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