Investors may be barking up the wrong tree.

Like value-conscious shoppers, value-conscious investors want to grow their money as much as possible. Dollar Tree (NASDAQ:DLTR) may offer great discounts in its stores, but DLTR stock isn’t necessarily a perfect pick for value and growth.

It may seem obvious that Dollar Tree should thrive as prices for products at many large retail chains rise. Indeed, as the company’s name suggests, Dollar Tree is supposed to be a haven for affordable products.

You’ll probably be able to find discounted prices at Dollar Tree and affiliated Family Dollar locations. But the company still faces stiff competition from Walmart (NYSE:WMT) and Temu, an increasingly popular Chinese e-commerce platform. Of course, Dollar Tree is succeeding in some respects, but when it comes to DLTR stock, the phrase “buyer beware” applies in 2024.

Dollar Tree is changing, stores are closing

Fortunately, Dollar Tree resisted inflationary pressures and sold every item for $1 or $1.25 for a surprisingly long time. However, it appears that even Dollar Tree had no choice but to give in to price pressure sooner or later.

Unfortunately, food price inflation puts a direct dent in the pocketbooks of struggling Americans, causing Dollar Tree to sell food for much more than a dollar. As proof of this, Dollar Tree now sells $3, $4 and $5 frozen and refrigerated meals in more than 6,500 stores.

This doesn’t just happen in the food sector. Dollar Tree currently sells $3 and $5 center-store items in about 5,000 stores, according to the company’s latest quarterly report. This may lead some bargain hunters to look to Walmart or even Temu for better deals on certain items.

It remains to be seen whether Dollar Tree will successfully sell many items priced over $1 this year. The company’s performance doesn’t appear to be bad for the time being, as it opened 219 new stores in the fiscal fourth quarter. This brings the company’s total annual number of new store openings to 641.

Meanwhile, as a result of Dollar Tree’s ‘portfolio optimization review’, it is planned to close about 600 Family Dollar stores in the first half of fiscal 2024. Dollar Tree also expects to close about 370 other stores (not necessarily Family Dollar brands). ) As the lease expires

Dollar Tree Chairman and CEO Rick Dreiling declared that his company is “taking decisive action to accelerate Dollar Tree’s multi-price launch and improve Family Dollar’s profitability and drive value.” Again, a “multi-price launch” appears to mean pricing a product above $1 in response to inflationary pressures.

As for “decisive action,” I suspect Dreiling is referring to the aforementioned closure of Family Dollar stores. Of course, I don’t have an insider’s view of what’s going on at Dollar Tree and Family Dollar. However, mass store closures are generally not a sign of success and confidence in a brand.

The loss of revenue hurts Dollar Tree’s value proposition.

Prior to Dollar Tree’s fiscal 2023 fourth quarter financial report released this morning, the company’s GAAP trailing 12-month price-to-earnings (P/E) ratio was 28.36x. For comparison, the industry average P/E ratio was 20.67x.

So, judging by that metric, Dollar Tree doesn’t have a bargain-basement valuation. However, DLTR stock plunged today, so the company’s valuation may improve somewhat over the next few trading sessions.

Still, even with Dollar Tree’s valuation multiple falling, the upside isn’t very attractive. Analysts expected the retailer to generate $8.67 billion in revenue in the fourth quarter of fiscal 2023, but fell short with $8.63 billion in revenue. Moreover, Dollar Tree’s quarterly adjusted earnings were $2.55 per share, missing Wall Street’s calls for earnings per share of $2.66.

Dollar Tree’s near-term future isn’t particularly bright either, as it expects to generate between $1.33 and $1.48 in revenue for the current quarter. This is a pessimistic outlook compared to analysts’ consensus estimate of $1.70 per share.

Short-term stock traders are punishing Dollar Tree by dumping the stock today because they don’t like when companies issue lower-than-expected future guidance. If the stock price falls low enough, a deal may become irresistible. My estimate is that $110 would be a good price for DLTR stock, but $100 would be better.

But even at those prices, Dollar Tree stock might not be worth buying. The smartest strategy is to wait for next quarter to see if Dollar Tree and Family Dollar expect to close more stores and continue to focus on items worth $1 or more. If so, investing your dollars in Dollar Tree is probably not a good idea.