On Wednesday, Dollar Tree Inc. (NASDAQ:DLTR) shares spiked more than 16% after approving an additional $1.05 billion for the buyback program. The company’s total buyback outlay now stands at $2.5 billion including the previously approved $1.45 billion for repurchases.
The company is living up to its goal of keeping a disciplined capital allocation strategy that balances returning capital to shareholders and reinvesting funds for business growth.
The company is also planning to introduce price points above $1.00 across all Dollar Tree Plus stores, while also testing additional price points above $1.00 in legacy Dollar Tree stores.
Dollar Tree looks undervalued
From a valuation perspective, Dollar Tree shares trade at compelling trailing and forward P/E ratios of 15.77 and 11.98, respectively. As a result, value investors could find the stock an attractive option for their portfolios.
Moreover, with analysts expecting its earnings per share to increase by nearly 63% this year before rising by a further 13.25% next year, growth investors could also begin to show interest in the stock.
In addition, the stock is down more than 6% this year, thereby underperforming the S&P 500 index. As such, it has a lot of ground to cover before catching up with the market.
Source – TradingView
Can the rebound continue?
Technically, Dollar Tree shares appear to have recently bounced off the trendline support in the intraday chart to rally towards the 100-day moving average. Moreover, the stock also appears to have surged closer to the overbought conditions of the 14-day RSI.
Therefore, it could experience a slight pullback before continuing the rally. Therefore, investors can target temporary pullback profits at $93.07, or lower at $84.44, if the price declines significantly.
On the other hand, if the stock surges above the 100-day MA, it could find resistance at $106.40 or higher at $116.25.
Wait for a support retest
In summary, although Dollar Tree’s buyback program is exciting to investors, Wednesday’s sharp spike could create an opportunity for a pullback.
Therefore, it may be best to wait for the stock to retest the current support levels before buying DLTR shares.
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