Retailers are overhauling their operations as technology redefines the shopping experience. But many seem to be moving too slowly as their demand is lagging, causing the industry to underperform the market - over the past six months, retail stocks’ 3.5% return has fallen short of the S&P 500’s 13.3% gain.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. With that said, here is one consumer stock poised to generate sustainable market-beating returns and two best left ignored.
Two Consumer Retail Stocks to Sell:
Ollie's (OLLI)
Market Cap: $4.37 billion
Often located in suburban or semi-rural shopping centers, Ollie’s Bargain Outlet (NASDAQ:OLLI) is a discount retailer that acquires excess inventory then sells at meaningful discounts.
Why Does OLLI Fall Short?
- Subscale operations are evident in its revenue base of $2.79 billion, meaning it has fewer distribution channels than its larger rivals
- Operating margin was unchanged over the last year, suggesting it failed to gain leverage on its fixed costs
- Low returns on capital reflect management’s struggle to allocate funds effectively
Ollie's is trading at $73.58 per share, or 15.7x forward P/E. If you’re considering OLLI for your portfolio, see our FREE research report to learn more.
Grocery Outlet (GO)
Market Cap: $1.11 billion
Due to its differentiated procurement and buying approach, Grocery Outlet (NASDAQ:GO) is a discount grocery store chain that offers substantial discounts on name-brand products.
Why Are We Out on GO?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 8.8 percentage points
- 7× net-debt-to-EBITDA ratio shows it’s overleveraged and increases the probability of shareholder dilution if things turn unexpectedly
Grocery Outlet’s stock price of $11.23 implies a valuation ratio of 18.6x forward P/E. Dive into our free research report to see why there are better opportunities than GO.
One Consumer Retail Stock to Watch:
Dick's (DKS)
Market Cap: $12.01 billion
Started as a hunting supply store, Dick’s Sporting Goods (NYSE:DKS) is a retailer that sells merchandise for traditional sports as well as for fitness and outdoor activities.
Why Does DKS Stand Out?
- Aggressive strategy of rolling out new stores to gobble up whitespace is prudent given its same-store sales growth
- Locations open for at least a year are seeing increased demand as same-store sales have averaged 3.3% growth over the past two years
- Estimated revenue growth of 5.5% for the next 12 months implies its momentum over the last three years will continue
At $135.07 per share, Dick's trades at 11.1x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.
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