Dollar Tree shares defining pennant

Dollar Tree Stores (NASDAQ:DLTR) operates discount variety outlets, offering consumable merchandise, health and beauty products, toys, durable housewares and seasonal goods. The chain consists of 3,232 stores in 48 states. That's up from 2,923 stores a year ago.

Dollar Tree surprised investors last week, when it said it expects fourth quarter sales to reach the upper end of its previous guidance range ($1.28-$1.31 billion). Analysts had been looking for $1.29 billion. Shares popped above 50-day/90-day moving average resistance on the news and are now consolidating the gain in a bullish "pennant" pattern. Equities frequently exit pennants moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.

Brokers recommend the issue with three "strong buys," two "buys," ten "holds" and two "sells." The DLTR P/E ratio (18.69), PEG ratio (1.55), Price to Sales ratio (0.88), Price to Book ratio (2.84), Price to Cash Flow ratio (9.91), Sales Growth rate (14.26%), Return on Assets (9.99%) and Return on Investment (12.51%) compare favorably with industry, sector and S&P 500 averages.

The stock is one of those used to calculate the S&P 400 MidCap Index. Institutional investors hold about 95% of the outstanding shares. Over the past twelve months, DLTR has traded between $23.90 and $32.78. A stop-loss of $27.95 looks good here. Note that the company's official fourth quarter sales release is scheduled for February 8th, before the open.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.