Dollar Tree (NASDAQ: DLTR) runs a network of about 3,500 discount variety stores in 48 states, operating under Dollar Tree, Deal$ and Dollar Bills banners. The stores offer housewares, toys, seasonal items, food, health and beauty aids, gifts and books. All items are priced at one dollar, or less. The outlets are generally located in high-traffic strip centers, anchored by mass merchandisers and supermarkets. Family Dollar Stores (NYSE: FDO) is a major competitor.

The firm pleased investors last week, when it reported Q1 EPS of 48 cents. That was six cents above the average Street estimate. Revenues of $1.05 billion were in-line with the company preannouncement. Management also guided Q2 EPS to 33-36 cents (36 cent consensus), Q2 revenues to $1.045-$1.075 billion ($1.04B consensus), FY09 EPS to $2.23-$2.39 ($2.33 consensus) and FY09 revenues to $4.52-$4.63 billion ($4.58B consensus). Wedbush Morgan and Friedman Billings subsequently reiterated "buy" ratings on the shares.

The stock popped on the news and has since begun to define a bullish "flag" consolidation pattern. Prices frequently exit flags moving in the same direction they were traveling on entry. In this case, that would be to the upside.

Altogether, brokers recommend the issue with three "strong buys", three "buys" and eight "holds". The DLTR EPS Growth rate (26.32%), Return on Assets (11.70%), Return on Investment (14.58%) and Return on Equity (19.37%) compare favorably with industry, sector and S&P 500 averages. Institutional investors hold about 97% of the outstanding shares. The stock is one of those used to calculate the S&P 400 MidCap Index. Over the past 52 weeks, it has traded between $20.72 and $45.98. A stop-loss of $31.50 looks good here.

Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com. He does not hold positions in either of the stocks mentioned above.