Retailers are adapting their business models as technology changes how people shop. Still, secular trends are working against their favor as e-commerce continues to take share from brick and mortars. This puts retail stocks in a tough spot, and over the past six months, the industry has pulled back by 1.6%. This drop was discouraging since the S&P 500 returned 5%.
The elite companies can churn out earnings growth under any circumstance, however, and our mission at StockStory is to help you find them. Taking that into account, here is one resilient consumer stock at the top of our shopping list and two we’re steering clear of.
Two Consumer Retail Stocks to Sell:
Dollar Tree (DLTR)
Market Cap: $20.17 billion
A treasure hunt because there’s no guarantee of consistent product selection, Dollar Tree (NASDAQ: DLTR) is a discount retailer that sells general merchandise and select packaged food at extremely low prices.
Why Are We Wary of DLTR?
- Annual revenue declines of 11.8% over the last three years indicate problems with its market positioning
- Conservative approach to adding new stores shows management is focused on improving existing location performance
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Dollar Tree is trading at $101.95 per share, or 15.2x forward P/E. If you’re considering DLTR for your portfolio, see our FREE research report to learn more.
America's Car-Mart (CRMT)
Market Cap: $104.8 million
With a strong presence in the Southern and Central US, America’s Car-Mart (NASDAQ: CRMT) sells used cars to budget-conscious consumers.
Why Do We Steer Clear of CRMT?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Performance over the past three years was negatively impacted by new share issuances as its earnings per share fell by 31.2% annually while its revenue was flat
At $12.66 per share, America's Car-Mart trades at 21.6x forward EV-to-EBITDA. To fully understand why you should be careful with CRMT, check out our full research report (it’s free).
One Consumer Retail Stock to Watch:
Ulta (ULTA)
Market Cap: $24.59 billion
Offering high-end prestige brands as well as lower-priced, mass-market ones, Ulta Beauty (NASDAQ: ULTA) is an American retailer that sells makeup, skincare, haircare, and fragrance products.
Why Does ULTA Stand Out?
- Offensive push to build new stores and attack its untapped market opportunities is backed by its same-store sales growth
- Brick-and-mortar locations are witnessing elevated demand as their same-store sales growth averaged 3% over the past two years
- Industry-leading 32.7% return on capital demonstrates management’s skill in finding high-return investments
Ulta’s stock price of $558.76 implies a valuation ratio of 19.7x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free.
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