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James Li
James Li
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5 Retail Companies Trading Below the GF Value Line

Stocks to consider as Nike soars on strong digital sales

September 23, 2020 | About:

In light of Nike Inc. (NYSE:NKE) posting strong digital sales during its fiscal 2021 first quarter, five retail companies that have high profitability and trade below their GuruFocus Value Line are American Eagle Outfitters Inc. (NYSE:AEO), Carter's Inc. (NYSE:CRI), Gap Inc. (NYSE:GPS), The Michaels Companies Inc. (NASDAQ:MIK) and Ulta Beauty Inc. (NASDAQ:ULTA) according to the All-in-One Screener, a Premium feature of GuruFocus.

Sports retail giant soars on strong sales growth on otherwise down day for markets

On Wednesday, shares of the Beaverton, Oregon-based sports retail giant closed at $127.11, up 8.66% from Tuesday's close of $116.98. The stock bucked the overall market trend, with the Dow Jones Industrial Average down 525.05 points from the previous close on continued pressure from Big Tech stocks.

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The Beaverton, Oregon-based sports retail giant said on Tuesday that revenue for the quarter ending Aug. 31 was $10.6 billion, topping the consensus estimate of $9.1 billion. While total revenue declined 1% year over year on a reported basis, Nike Brand digital sales increased 82% year over year with double-digit increases across North America and Greater China and a triple-digit increase in the European region.

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Nike Chief Financial Officer Matt Friend said that the company is "recovering faster based on accelerating brand momentum and digital growth": While the coronavirus pandemic hampered physical retail traffic around the globe, Nike's investments in "consumer-led digital transformation" continues to catalyze long-term growth and profitability. GuruFocus ranks the company's profitability 9 out of 10, driven by a 4.5-star business predictability rank, an operating margin that outperforms 76.80% of global competitors and a return on assets that tops 92.58% of global apparel manufacturing companies.

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Gurus with large holdings in Nike include Ken Fisher (Trades, Portfolio), Spiros Segalas (Trades, Portfolio) and Pioneer Investments (Trades, Portfolio).

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Stock market continues slump as Big Tech falters

The overall stock market continued its September slump as investors whipsaw between "conflicting Covid-19 headlines and the growth versus cyclical debate" according to CNBC's comments about a note from Adam Crisafulli of Vital Knowledge. CNBC added that Art Hogan, chief market strategist at National Securities, said that the "rotation out of tech and into cyclical stocks" has escalated during the month, a "historically tough month" for markets.

As such, investors may seek opportunities in retail stocks that are modestly undervalued according to the GuruFocus Value Line, a new, website-exclusive way to measure stock valuations. Modestly undervalued stocks have price-to-GF-Value ratios between 0.7 and 0.9, i.e., below the intrinsic value but high enough to avoid becoming a potential value trap.

American Eagle Outfitters

American Eagle Outfitters is modestly undervalued with a price-to-GF-Value ratio of 0.79.

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GuruFocus ranks the Pittsburgh-based retailer's profitability 8 out of 10 on the back of operating margins increasing approximately 1% per year on average over the past five years and revenues increasing approximately 8.7% per year on average over the past three years, a rate that outperforms 71.25% of global competitors. Despite this, returns are underperforming over 76% of global retail companies.

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Gurus with large holdings in American Eagle Outfitters include Steven Cohen (Trades, Portfolio)'s Point72 Asset Management and Jim Simons (Trades, Portfolio)' Renaissance Technologies.

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Carter's

Carter's has a price-to-GF-value ratio of 0.89, suggesting modest undervaluation.

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GuruFocus ranks the Atlanta-based baby apparel manufacturer's profitability 9 out of 10 driven on a five-star predictability rank and profit margins that outperform over 72% of global competitors.

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Gap

Gap, a retailer of brands like Old Navy and Banana Republic, has a price-to-GF-Value ratio of 0.75.

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GuruFocus ranks the San Francisco-based company's profitability 8 out of 10, driven by a 3.5-star business predictability rank and a three-year revenue growth rate of 3.80%, a rate that outperforms 56.98% of global competitors.

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Michaels

Michaels, a retailer of arts and crafts products, has a price-to-GF-Value ratio of 0.76.

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GuruFocus ranks the Irving, Texas-based company's profitability 8 out of 10 on the back of operating margins outperforming 78.8% of global competitors and returns on assets topping 68.81% of global retail companies.

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Ulta Beauty

Ulta Beauty, a retailer of skincare and hair care products, has a price-to-GF-Value ratio of 0.79.

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GuruFocus ranks the Bolingbrook, Illinois-based company's profitability 9 out of 10 on several positive investing signs, which include a five-star business predictability rank and profit margins that outperform over 73% of global competitors.

Disclosure: Long Ulta Beauty.

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About the author:

James Li
I am an editorial researcher at GuruFocus. I have a Master's in Finance from SMU, and I enjoy writing reports on financial trends and investor portfolios. Follow me on Twitter at @JamesLiGuru!

Visit James Li's Website


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