Dollar Tree Might Still Be Underestimated

My long-term thesis for Dollar Tree (DLTR) is that this store has figured out a way to raise prices while keeping almost all of its customers. Normally, it’s hard for a dollar store to do that. Low income shoppers go to stores like Dollar Tree because of their fixed price points. Dollar Tree and its peers traditionally had to maintain their price points even while inflation was increasing their expenses. But now, Dollar Tree has found a way around that problem by creating multiple price tiers.

Now, Dollar Tree has provided an update on how well this strategy is working. It looks like the store did lose some customers in Q1 2026, because its traffic was down 1%. But its comps were still up 3.5% for the quarter because it sold more merchandise at higher price points. That’s not the only thing Dollar Tree is doing. It’s also remodeling its stores and building new stores, so its revenue is likely to rise. It’s reducing shrink, which is positive for its margins. And it’s buying back stock as well. When a company has rising revenue and margins, buybacks can produce strong EPS growth.

Dollar Tree is a growth stock, so investors will want to know if its EPS growth can continue. It’s important to consider the company’s adjusted results instead of its GAAP results because of the recent Family Dollar sale. But even if you consider that factor, current expectations might still be too low for this company. The main reason for that is that it looks like Dollar Tree might be providing conservative EPS guidance for 2026.

Dollar Tree Didn't Raise Its Guidance After a Strong Quarter

Dollar Tree had a great quarter, which tells me that its tier-based pricing is working. It reported 7.2% overall revenue growth in the first quarter with 3.5% comps, and it’s still adding stores. But the company maintained its guidance for $20.5 to $20.7 billion in revenue this year anyway. And it maintained its 2026 guidance for 3% to 4% comps as well. At the top end of its guidance, Dollar Tree expects 6.6% full-year revenue growth because its revenue was $19.41 billion in 2025. So, if Dollar Tree’s growth doesn’t slow down, it’s likely to outperform its current guidance.

Dollar Tree has also been beating expectations on the bottom line. According to Yahoo! Finance, Dollar Tree has beaten analysts’ estimates on EPS for the last 4 quarters. Dollar Tree guided for full-year EPS of $6.70 to $7.10, but it didn’t provide guidance for operating income or net income. So, I decided to check whether it was likely to outperform its EPS guidance on the bottom line as well. Of course, it’s also worth considering why Dollar Tree didn’t raise its guidance.

The Question Is Whether Dollar Tree Can Maintain Its Pricing Power

Dollar Tree might be providing conservative guidance because its management is concerned that the store might not be able to pass on inflation-related price increases later in the year. That’s a valid concern because Dollar Tree’s core customers are low income. But at the same time, Dollar Tree’s business model is changing. If Dollar Tree can sell premium products to wealthier customers who are trading down while maintaining a price point around $1 for its other merchandise, it should have more pricing power than it did in the past. It sounds like this strategy worked in the first quarter, so I’d expect similar results for the rest of the year as well.

I don’t think Dollar Tree is likely to change course in 2026 because its overall strategy is working. It doesn’t sound like the company plans to reduce its in-store prices or cancel its remodeling plan. And it sounds like it expects its full-year comps to be similar to its Q1 2026 comps, so the company might be willing to accept a small loss in traffic to maintain its current prices as well.

So, I don’t think Dollar Tree’s traffic will rise this year but the store should be able to maintain its current margins anyway. Unlike other stores, Dollar Tree’s adjusted operating margin was lower than its GAAP margin this quarter because it sold Family Dollar. The company reported a 9.5% adjusted operating margin in Q1 2026, so I’d use that margin to create my full-year estimate.

My Dollar Tree Projection for 2026

If Dollar Tree’s revenue rose 7% in 2026, its full-year revenue would be $20.77 billion. With a 9.5% adjusted operating margin and $20.77 billion in revenue, Dollar Tree’s 2026 full-year operating profit would be $1.973 billion. Its EBIT was about $11 million lower than its operating profit in Q1 2026 because of interest expenses and other income, so I’d subtract $44 million for a full-year EBIT estimate of $1.929 billion. Assuming a 25% tax rate, Dollar Tree’s full-year net income would be $1.447 billion.

Dollar Tree had 197.4 million shares outstanding at the end of Q1 2026. So, if Dollar Tree doesn’t buy back any more stock in 2026 and can maintain its current margins, I’d estimate that its full-year EPS will be $7.33. Again, Dollar Tree’s 2026 guidance calls for EPS of $6.70 to $7.10, which is $6.90 at the midpoint. And the company didn’t raise its guidance after its strong first-quarter results. According to Yahoo! Finance, analysts currently expect Dollar Tree to report EPS of $6.84 as well.

With a share price of $116, Dollar Tree is trading at a FY2026 P/E of 17 based on analysts’ current expectations. With EPS of $7.33 and a P/E of 17, my price target would be $125, which is 8% higher than the current price. Again, this company has a recent history of beating EPS estimates as well.

Conclusion

Even after the recent rally, Dollar Tree’s stock might be slightly undervalued. Dollar Tree maintained its 2026 guidance even after posting strong first-quarter results, so its business model improvements might not be fully priced in. I think Dollar Tree will be able to maintain its current margins because of its tiered pricing strategy, so it should be able to sell premium products for higher prices while keeping prices around $1 for its core customers. The most likely catalyst for this stock would be beating EPS estimates again in upcoming quarters.