Dollar Tree Stock Sell-Off: Should You Buy the Dip?

Market conditions have presented challenges for Dollar Tree (NASDAQ: DLTR) over the past few years. Contentious trade relations with China and supply chain challenges have left the company struggling to fill its shelves, while rising inflation has pressured many of its cash-strapped consumers.

Amid such headwinds, the retail stock is down more than 40% since reaching a high in 2022. Still, the company has come to terms with its failed Family Dollar acquisition, spinning off the chain.

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Now, with its capital free and a modified business strategy, it's worth asking whether investors should buy the stock on the dip, or if this is one they should still avoid.

Image source: Getty Images.

The new state of Dollar Tree

Dollar Tree is an ultra-discounter that sells crafts, cleaning supplies, party supplies, and other items, giving shoppers what it calls a "thrill of the hunt" experience. Most of its products sell at a $1.25 price point, though it has recently introduced price tiers as high as $7, as inflation reduces the number of items that can be sold profitably at lower prices.

The company is also about to begin a new chapter as it prepares to sell Family Dollar to two private equity firms for around $1 billion. In 2015, Dollar Tree outbid Dollar General for Family Dollar, paying just over $9 billion. However, Family Dollar differed from its new parent in that it focused more heavily on essentials, making it a different type of retail business.

After years of failing to fully integrate the chain into its operations, Dollar Tree finally agreed to a sale in March. In the 10 years it owned Family Dollar, the stock rose by less than 30% as this misstep was a drag on its financials.

Despite having to sell Family Dollar at an $8 billion loss, the move is likely positive for Dollar Tree. Now, it can focus single-mindedly on the business it knows best. It can also better address the rising threat of e-commerce and find ways to mitigate tariffs on goods from places like China and Mexico, where many of its goods are produced.

Where Dollar Tree stands financially

As of this writing, the Family Dollar disposition is not yet complete. However, Dollar Tree released financials with Family Dollar reflected as discontinued operations. Thus, the financial data reflects only the Dollar Tree segment, making it easier for investors to evaluate the enterprise as it is going to look.

They may like what they see. In the first quarter of 2025, net sales of $4.6 billion rose 11%. Same-store sales increased by 5.4%, with foot traffic up 2.5% and customers spending 2.8% more than last year.

Higher operating expenses weighed on the bottom line, but with other income rising, the company's net income of $343 million rose 14% compared with the year-ago quarter.

For all of 2025, management forecasts net sales of $18.5 billion to $19.1 billion, representing a 7% yearly increase at the midpoint.

Moreover, the stock has been on an uptrend since announcing the Family Dollar sale. Thus, even though shares are down over the last 12 months, they have risen by almost 35% since the beginning of the year.

Indeed, recent quarterly losses left Dollar Tree without a price-to-earnings ratio (P/E). But the forward P/E of 19 means that investors can still add shares without overpaying. With the company now focused on what it does best, that valuation may make the stock more attractive to new buyers.

Should you buy the dip in Dollar Tree stock?

Under current conditions, Dollar Tree is in a strong position to deliver market-beating returns.

Indeed, the Family Dollar acquisition seemed to limit the growth of the ultra-discounter and its stock price. Also, the fact that Dollar Tree is down by around 40% from its all-time high despite recent gains highlights the depth of the pain it has suffered.

Nonetheless, the growth in the latest quarter and the slightly lower net sales increases forecast for the year bode well. When also factoring in what is still a discounted forward P/E ratio, Dollar Tree could not only deliver market-beating returns but also surpass its all-time high in the coming years.

Should you invest $1,000 in Dollar Tree right now?

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Will Healy has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.