The holiday season is upon us, providing investors with lucrative opportunities to execute tactical trades amid a seasonal spike. That’s right, the festive season doesn’t only bear tangible gifts but also market-based handouts. Retail stocks are usually popular this time of the year as investors anticipate a spike in sector-based sales. There’s also a secondary effect in the form of a seasonal market anomaly, meaning the financial markets often overshoot the underlying value-add of a seasonal sales spike. I discovered three outliers in the retail space, namely Urban Outfitters (NASDAQ: URBN), Party City Holdco (NYSE: PRTY), and Nike (NYSE: NKE).
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I’m bullish on all three stocks.
Urban Outfitters (URBN)
Apparel and accessory retailers are ideally placed to benefit from the holiday season. Urban Outfitters is known for its successful “flash sale” strategy, which could bear fruit yet again this festive season. In addition, the company boasts functional supply lines with high-level digitalization, adding to its overall up and downstream efficiency.
Urban Outfitters is, in many ways, a growth stock, with its year-over-year revenue growth reading at 13.4%. Moreover, analysts anticipate the firm’s bottom line to skyrocket by a stellar 501.32% in the coming 12 months due to cooling input costs.
The company’s income statement was severely dented in the earlier stages of this year due to a tight labor market and global inflationary pressure. However, Urban Outfitters is likely set for a turning point amid rising interest rates and cooling of non-core inflation. Also, the company has a strong brand identity, ensuring it will be center stage when holiday shopping is in full flow.
Another factor to consider is Urban Outfitters’ fast-growing Nuuly segment. Nuuly’s unique fashion resale and rental business model has been a true success, with the segment more than tripling its operating profits in the past year. Nuuly’s success conveys Urban Outfitters’ potential to scale with diversified revenue streams, thus providing the company with a competitive advantage in a fiercely competitive industry.
Furthermore, Urban Outfitters’ stock is trading at a noticeable discount. The asset has a price-to-sales ratio of merely 0.48x compared to the sector median of 0.83x, and its price-to-earnings ratio of 10.3x is at a 24% discount to its five-year average. Therefore, it’s plausible to conclude that the stock is relatively undervalued as we head into the holiday season.
Is URBN Stock a Buy, According to Analysts?
Turning to Wall Street, Urban Outfitters earns a Hold consensus rating based on two Buys and six Holds assigned in the past three months. The average URBN stock price target of $22.63 suggests 5% in downside risk.
Party City Holdco. (PRTY)
Party City is a holiday season staple. The company operates a vertically-integrated business that designs, manufactures, and distributes various party-related accessories.
As previously mentioned, various companies have a seasonal lag, meaning that sales are cyclical and coherent with specific stages of the year. The festive season lag applies to Party City more than most due to the nature of its products. Thus, the company and its stock will likely outperform in the coming months.
In isolation, Party City is considered a deep-value stock. The stock’s price-to-sales ratio of ~0.05x is much lower than its five-year average of 0.33x. Furthermore, the stock’s tame price-to-book ratio (0.5x) shows that the market hasn’t yet latched onto the residual value that Party City presents.
Is Party City Stock a Buy, According to Analysts?
Turning to Wall Street, Party City earns a Hold rating based on one Hold assigned in the past three months. PRTY stock’s price target of $2.00 implies 119.4% upside potential.
Nike (NKE)
Nike is one of the ultimate brands of our lifetime. Moreover, the company sells gift-friendly products, ideally suitable as presents in both a personal and professional capacity. Thus, it’s trivial that the company will likely experience a spike in sales this holiday season.
The American retail giant recently reported its first-quarter financial results, revealing 4% year-over-year revenue growth and a gross profit margin of 44.3%. The firm did see its diluted earnings-per-share shrink by 20%. However, core earnings remain robust as the slump was mostly due to systemic inflation.
Nike could be one of the breadwinners in the coming months and quarters. The stock displays consumer discretionary attributes; however, its sales have remained resilient throughout 2022’s consumer cyclical downturn. Furthermore, there’s much room for Nike to scale, with initiatives such as NikeDirect and its digital platforms being key factors.
Although Nike’s price multiples might seem elevated, it’s worth noting that they’re below their cyclical averages. For example, Nike’s price-to-earnings and price-to-book ratios are at 44.3% and 39.7% discounts, respectively, to their five-year averages.
Lastly, Nike presents investors with a ~1.3% forward dividend yield. Even though Nike’s dividend yield isn’t in the upper echelon, it does provide an added layer to the stock’s total-return prospects.
Is NKE Stock a Buy, According to Analysts?
Turning to Wall Street, Nike earns a Moderate Buy consensus rating based on 17 Buys and 10 Holds assigned in the past three months. The average NKE stock price target of $109.92 implies 17.25% upside potential.
Concluding Thoughts: These Stocks Look Undervalued
Urban Outfitters, Party City Holdco, and Nike will likely exhibit a seasonal pattern this holiday season. The companies possess “best-in-class” retail attributes, and their stock prices look tremendously undervalued.
