It is a great Friday evening and I am excited about rounding up this week on a winning note. In today’s piece, we will have a quick recap of one of my earlier stock options recommendations. In July, I wrote a piece about Dollar Tree, Inc. (NASDAQ:DLTR) titled, “Dollar Tree Set to Soar When the Market Goes South”. In that piece, I talked about how the shares of Dollar Tree had much upside potential ahead, based on the company’s plan to acquire Family Dollar.
In that piece, I recommended buying the DLTR Jan 2015 57.500 call (DLTR150117C00057500) at $2.71 asking price. The $57 recommendation in shares of Dollar Tree came at a period when the stock was trading at $54.64 per share.
DLTR Performance in Six Months
As at market close today, shares of Dollar Tree were at $68.70 to mark a 25.73% improvement within six months. Interestingly, the call option that I recommended at a $2.71 asking price was up an impressive 359.5% in six months to an asking price of $12.50 today. The said contract is due for expiration in January 2015, but you will be on the safer side if you use stop/limit loss orders to lock in your profits while waiting for more upside potential on the stock in the next couple of weeks. I recommend setting a stop/limit order at $12.20 in order to lock in profits at 358.5%.
New Coverage on Dollar Tree
Dollar Tree with its market capitalization of $14.26B is an operator of discount variety stores offering merchandise at the fixed price. The company operates 4,351 discount variety retail stores. Its stores operate under the names of Dollar Tree, Deal$, Dollar Tree Deal$, Dollar Giant and Dollar Bills. As of January 28, 2012, it operated 4,252 stores in 48 states and the District of Columbia, as well as 99 stores in Canada.
It buys approximately 58% to 60% of its merchandise domestically and imports the remaining 40% to 42%. Its domestic purchases include basic, seasonal, closeouts and promotional merchandise. It maintains a selection of products within variety store categories.
Why We Are Looking at Dollar Tree Today
The first reason I am optimistic about the prospects of Dollar Tree is the decent appreciation that the stock has recorded despite the fact that it is not a typical growth stock. For instance, shares of Dollar Tree have soared by 23.06% this year and its revenue has increased by 6.65% within the same period.
The second reason Dollar Tree has strong prospects going forward is its plan to acquire the Family Dollar Chain. The acquisition of Family Dollar will give Dollar Tree an edge in the highly competitive retail industry such that Dollar Tree can compete more favorably with the likes of Wal-Mart and Target.
The third reason I am optimistic about Dollar Tree going forward is the company’s plan to build and maintain a strong online presence. Dollar Tree already has a unique selling point with its pay-one-price model in which all goods has a $1.25 (Canadian Dollar) price point. I strongly believe that the building of a vibrant online presence will give the company a chance to expand its customer base, drive incremental sales, expand brand awareness, and attract more customers into its stores.
How to Trade DLTR Options
I am bullish on Dollar Tree and I have a $70 price target on the stock in the next six months. I recommend buying the DLTR May 2015 67.500 call (DLTR150515C00067500) at an asking price of $4.90.
— Daily Option Alerts