3 Oversold Retail Stocks to Grab Now
The recent market correction has driven some retail industry stocks into oversold territory. Retailers have nevertheless reported a consistent rise in sales and have surpassed earnings estimates in their last...
The recent market correction has driven some retail industry stocks into oversold territory. Retailers have nevertheless reported a consistent rise in sales and have surpassed earnings estimates in their last reported quarter. So, we think it could be wise to bet on oversold retail stocks Macy’s (M), Dillard (DDS), and Tilly’s (TLYS) that are well-positioned to capitalize on strong consumer spending in the coming quarters. Read on.
The major market indexes have been under pressure lately due to the Fed’s decision to increase the interest rates several times this year, growing Ukraine–Russia tension, and rising inflation. The three major stock indexes have been in negative territory this month. The Dow Jones Industrial Average closed its last trading session at 34,160.78, down 7.31 points. In contrast, the S&P 500 and Nasdaq Composite closed at 4,326.51 and 13,352.78, respectively, losing 0.5% and 1.4%, respectively.
However, the economy grew at a 6.9% annualized pace for the fourth quarter of 2021, comfortably beating analysts’ estimates of 5.5%. The GDP growth can be attributed primarily to a 15% year-over-year increase in consumer spending during the fourth quarter of 2021. And since consumer spending is expected to remain strong in the near term, the retail industry could report stellar growth. Moreover, Wells Fargo economist Tim Quinlan said, “The Covid fatigue is real, and especially given the less deadly nature of this particular variant, I don’t see it causing this watershed change in consumer behavior.”
Given this backdrop, we think it could be wise to add oversold retail stocks Macy's, Inc. (M), Dillard's, Inc. (DDS), and Tilly's, Inc. (TLYS) to one’s watchlist. These names have the potential to rebound by capitalizing on solid consumer spending.
Macy's, Inc. (M)
Cincinnati, Ohio-based M is an omnichannel retail company that operates its stores, websites, and mobile applications under three brands: Macy’s, Bloomingdale’s, and Bluemercury. It sells a range of merchandise for men, women, and kids, including apparel and accessories, cosmetics, home furnishings, and other consumer goods.
On Nov. 18, 2021, M announced plans to launch a curated digital marketplace to build on its existing authority as a digitally led omnichannel retailer. The launch is expected to expand the company’s assortment in existing categories and brands significantly, while introducing a range of new categories. Matt Baer, the chief digital and customer officer at M, said, “The market platform will further accelerate our Polaris strategy and unlock new opportunities for sustainable and profitable growth.”
M’s net sales for its fiscal third quarter, ended Oct. 30, 2021, increased 36.3% year-over-year to $5.44 billion. The company’s operating income came in at $523 million compared to a $127 million loss in the prior-year quarter. Its adjusted EBITDA increased 381.1% year-over-year to $765 million.
In terms of forward EV/S and P/S, M’s respective 0.59x and 0.32x are lower than the 1.33x and 1.06x industry averages. Also, its 5.35x forward non-GAAP P/E is 60.2% lower than the 13.46x industry average.
Analysts expect M’s EPS and revenues for its fiscal 2022 to increase 319.9% and 39.6%, respectively, year-over-year to $4.86 and $24.22 billion. It has surpassed the Street’s EPS estimates in each of the trailing four quarters. The stock has declined 2% in price year-to-date to close the last trading session at $25.67.
M’s strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to a Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
M has an A grade for Growth and Value and a B grade for Quality. In the A-rated Fashion & Luxury industry, it is ranked #20 of 64 stocks. Click here to see the additional ratings of M for Momentum, Stability, and Sentiment.
Dillard's, Inc. (DDS)
Little Rock, Ark-based DDS is a retailer of fashion apparel, cosmetics, and home furnishings. It operates approximately 280 Dillard’s stores, including 31 clearance centers and an internet store. It offers a selection of merchandise that includes fashion apparel for men, women, and kids, accessories, cosmetics, home furnishings, and other consumer goods.
For the fiscal third quarter, ended Oct. 30, 2021, DDS’ net sales increased 44.5% year-over-year to $1.48 billion. Its comparable retail sales increased 48% for the quarter. And the company’s net income increased 518.4% year-over-year to $197.30 million. Also, its EPS increased 586% year-over-year to $9.81, surpassing the 77.7% consensus EPS estimate.
In terms of forward EV/S and P/S, DDS’ respective 0.80x and 0.77x are lower than the 1.33x and 1.06x industry averages. Furthermore, its 6.48x forward Price/Cash Flow is 42.9% lower than the 11.36x industry average.
Analysts expect DDS’ EPS and revenue for fiscal 2022 to increase 1,489.6% and 47%, respectively, year-over-year to $38.63 and $6.52 billion. It surpassed the Street’s EPS estimates for each of the trailing four quarters. The stock has declined 0.2% in price over the past month. However, it has gained 179.7% over the past year to close the last trading session at $255.47.
DDS’ POWR Ratings reflect this promising outlook. The stock has an overall B rating, which equates to Buy in our proprietary rating system.
Tilly's, Inc. (TLYS)
TLYS is a specialty retailer that provides casual apparel, footwear, and accessories. The Irvine, Calif., company operates approximately 244 stores in 33 states. It also offers online shopping for which it provides the same products as in stores, supplemented by additional online-only styles.
On Jan.10, 2022, TLYS announced that its total net sales during the nine-week holiday period, which ended on Jan. 1, 2022, increased 16.5% to $173.30 million, compared to $148.70 million in the year-ago period. Its comparable net sales in physical stores increased by 23.2% for the 2021 holiday period compared to a 12.4% decrease in the year-ago period.
TLYS’ net sales increased 46.9% year-over-year to $206.10 million for the third quarter, ended Oct. 31, 2021. The company’s net income came in at $20.83 million, compared to $2.11 million in the year-ago period. Also, its EPS increased 842.8% year-over-year to $0.66.
In terms of forward EV/S and EV/EBIT, TLYS’ respective 0.66x and 5.86x are lower than the 1.33x and 12.99x industry averages. Furthermore, its 1.97x forward P/B is 34.7% lower than the 3.01x industry average.
TLYS’ EPS and revenue for its fiscal 2022 are expected to increase 5,325% and 45.8%, respectively, year-over-year to $2.09 and $774.82 million. It surpassed consensus EPS estimates in each of the trailing four quarters. The stock has declined 20.1% in price over the past month and 20.8% year-to-date to close the last trading session at $12.75.
TLYS’ strong fundamentals are reflected in its POWR Ratings. It has an overall B rating, which equates to a Buy in our proprietary rating system.
What To Do Next?
If you’d like to see more top value stocks, then you should check out our free special report:
What makes these stocks great additions to any portfolio?
First, because they are all undervalued companies with exciting upside potential.
But even more important, is that they are all top Buy rated stocks according to our coveted POWR Ratings system. Yes, that same system where top-rated stocks have averaged a +31.10% annual return.
Click below now to see these 7 stellar value stocks with the right stuff to outperform in the coming months.
M shares were trading at $24.74 per share on Friday morning, down $0.93 (-3.62%). Year-to-date, M has declined -5.50%, versus a -9.53% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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