Family Dollar Stores (NYSE: FDO) operates a chain of more the 6,500 U.S. retail discount stores, offering consumables, home products, apparel, electronic items and seasonal goods. The firm specializes in neighborhood outlets, located near its low- and middle-income customers in rural and urban areas. Most items are priced under $10. Wal-Mart Stores (NYSE: WMT) and Dollar Tree (NASDAQ: DLTR) are major competitors.

The company pleased investors last week, when it reported fiscal Q3 EPS of 46 cents and revenues of $1.7 billion. Analysts had been looking for 40 cents and $1.7 billion. The CEO attributed success to the company's "intense focus on controlling expenses and mitigating inventory risk." Management also guided Q4 EPS to 30-35 cents (29 cent consensus).

FDO shares popped on the news and then moved into the initial stage of a bullish "pennant" consolidation pattern. Prices frequently exit pennants moving in the same direction they were traveling on entry. In this case, that would be to the upside.

Brokers recommend the issue with two "buys", eleven "holds" and two "underperforms". Analysts see a 14% average annual growth rate, through the next five years. The FDO P/E ratio (14.64), PEG ratio (1.08), Price to Sales ratio (0.46), Price to Book ratio (2.59), Price to Cash Flow ratio (8.52), Price to Free Cash Flow ratio (17.57), Return on Assets (8.39%) and Return on Investment (13.86%) compare favorably with industry, sector and S&P 500 averages. The stock is one of those used to calculate the S&P 500 Index. Over the past 52 weeks, it has traded between $14.62 and $35.41. A stop-loss of $19.50 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 any of the stocks mentioned above.