Dollar Tree, Inc. (DLTR) shares rose more than 5% during Tuesday's session after the retailer posted better-than-expected third quarter financial results.

Key Takeaways

  • Dollar Tree shares moved sharply higher during Tuesday's session after the retailer posted better-than-expected third quarter results.
  • Revenue and GAAP earnings came in better than expected as comparable sales rose 5.1% and gross margins improved by 150 basis points to 31.2% of sales.
  • The relative strength index (RSI) and moving average convergence divergence (MACD) remain in neutral territory, which means that the stock could have more room to run over the coming sessions.

Revenue rose 7.5% to $6.18 billion, beating consensus estimates by $60 million, while GAAP earnings came in at $1.39 per share, beating consensus estimates by 23 cents per share. Comparable sales came in at 5.1%, versus a consensus of 4.7%, while gross margins rose 150 basis points to 31.2% of sales in a further sign of underlying strength. Management did not provide any official fourth quarter guidance but said that comparable sales for the fourth quarter were running ahead of expectations.

Chart showing the share price performance of Dollar Tree, Inc. (DLTR)
TradingView.com

From a technical standpoint, the stock broke out during Tuesday's session from its price channel dating back to mid-September. The RSI remains neutral with a reading of 61.39, and the MACD remains relatively flat. These indicators suggest that the stock could have more room to run over the coming sessions.

A price channel appears on a chart when a security's price becomes bounded between two parallel lines. Depending on the direction of the trend, the channel may be termed horizontal, ascending, or descending.

Traders should watch for a close above trendline resistance at $98.11 to confirm the breakout and signal a new uptrend toward trendline resistance at $110.45. If the stock fails to break out, the price could remain range bound in its price channel with a high of $98.11 and low of $94.41. If the stock breaks down from $94.41, traders could see a move to the 200-day moving average at $88.51 or prior lows, although that scenario appears less likely to occur.

The Bottom Line

Dollar Tree shares moved sharply higher during Tuesday's session after the company reported better-than-expected third quarter financial results. With the RSI and MACD in neutral territory, the stock has more room to run after breaking out from its bullish price channel.

The author holds no position in the stock(s) mentioned except through passively managed index funds.