Hudson’s Bay Co. (TSX:HBC) has been on a nasty slide to historic lows. The company has lost 66% of its value over a span of two years. The stock has started to show some signs of life by gaining 17.3% over the last two weeks. Is this the start of a rebound back to higher levels, or is there more downside ahead?
I believe Hudson’s Bay is a great Canadian brand that will be around for many years. The stock is way oversold and could be a great buy for contrarian investors looking for rebound opportunities in 2017.
The retail space is on a downward spiral right now, and Hudson’s Bay is one of the companies getting hit the hardest. The company reported a net loss in its last quarter, and the management team quickly lowered its sales estimates by a whopping $1 billion.
I believe the management team at Hudson’s Bay will be able to turn things around if they shift their focus to using technology to drive sales. The digital platform needs to be improved, and there needs to be a driving force to attract customers back into its stores. Hudson’s Bay is a very old retail company, but it will need to adapt to the digital age or there’s a very good chance it could be left behind.
Hudson’s Bay is seeing sales increase on its online platform, but it will need to invest a lot more to rebound from current levels. Going forward, we can expect the company to improve its e-commerce platform and introduce innovative ways to attract customers into its stores. This will be an extremely expensive step for the company, but I believe it is necessary or a quick rebound will be very difficult.
It’s never a good strategy to catch a falling knife. Hudson’s Bay still has a lot of negative momentum, and the rally the company is enjoying right now might be short-lived. There’s no question that there’s a ton of volatility in the stock right now due to short-term traders. Although the stock is ridiculously undervalued, I believe there could be more downside considering the negative trajectory of the stock.
If you believe that Hudson’s Bay can turn things around, then I would buy the stock in small chunks over the course of a year. This way you won’t be disappointed if the stock continues to fall into the abyss. There’s no bell that goes off when the stock is at its bottom, so this is a great strategy to initiate a position in a company that has gone out of favour with the general public. Nobody knows if the rebound has begun, but it’s very likely that the bottom is close.
The stock currently trades at a 0.7 price-to-book multiple, a 0.1 price-to-cash flow, and a very nice 1.9% dividend, which should be treated as a bonus. The stock is oversold, and there’s deep value to be had for investors who have a long-term horizon of five years or more.
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Fool contributor Joey Frenette has no position in any stocks mentioned.