Looking back at the Aritzia Inc. (TSX:ATZ.B) initial public offering (IPO) over a year ago, investors will now have enough data to reflect and make investment decisions based on whether Aritzia’s track record makes the case that the company will be a good long-term hold.
Let’s take a look at how Aritzia has performed and dig a bit deeper into the company’s long-term future in a retail sector that’s been hit hard of late.
Fellow Fool analyst Joseph Solitro covered Aritzia’s fiscal Q3 earnings release earlier this month, noting stronger- than-expected performance in adjusted earnings growth, gross profit, and revenue at 11.4%, 11.3% and 9.6%, respectively. These double-digit returns across the board (rounding up revenue) represent growth that may be viewed in a very positive light given the retail “graveyard” many companies now find themselves traversing coupled with the long-term headwinds handed to bricks-and-mortar retailers such as Aritzia from e-commerce giants entering this sector.
Despite excellent quarterly results and what appears to be an improving stock price trajectory, a recent piece by fellow Fool analyst Will Ashworth describes the same-store sales deceleration, which may be cause for concern among long-term growth investors betting on a Lululemon-like growth story. I must agree with Will on this one; given the current retail landscape, the fundamentals for Aritzia just don’t support its current valuation landscape. Readers should refer to Will’s article for some in-depth analysis on this trend.
That said, what I do like about Aritzia is the company’s ability to return value on a Return on Asset (ROA) and Return on Equity (ROE) basis. Aritzia’s trailing 12-month ROA and ROE came in at 107% and 23.7%, respectively. In general, companies with an ROE above 20% should be considered prime candidates for your portfolio. In the retail sector, an ROE exceeding 20% is quite uncommon; in this regard, Aritzia appears to be doing quite well.
While high ROE and ROA numbers are great, my concern continues to be centred on the current share structure of Artizia — and the fact that management hasn’t put forward any plans to issue a dividend going forward. The IPO itself was a way for insiders to cash out, with the operating business receiving virtually nothing from the transaction, making this IPO one I suggested investors avoid altogether.
My take on Aritzia has remained bearish, and until the company announces its plans on issuing a dividend, I’m out.
Here are other companies that value investors should consider instead:
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This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.
Fool contributor Chris MacDonald has no position in any stocks mentioned in this article.