This Fashionable Canadian Retailer Could Soar in Price

Why Aritzia (TSX:ATZ) may be heading to $20 by year-end.

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I’ve never been a fan of Aritzia Inc. (TSX:ATZ) stock after the company went public a few years ago. Fashionable clothiers like Aritzia are subject to unique tastes, seasonality, and sudden changes in fads. Given the amount of spending the company needed to stay on top of the “hottest” trends, and the probability that a new design would be destined for the bargain rack from the get-go, I was quick to discount Aritzia because of the unpredictable nature of the high-fashion industry.

Although Aritzia commanded high margins, I was also skeptical with regard to Aritzia’s international potential. As you may know, the company has ambitious U.S. growth plans and a brand that foreign consumers may not be familiar with. Thus, I discounted the company’s international growth potential and deemed the stock uninvestable.

After Aritzia’s latest quarter, however, my stance took a 360-degree turn, and I’m now bullish on the company that I urged investors to avoid like the plague back in 2016.

“It’s important to realize that fashion retail is a business that is very fickle, and one fantastic quarter could be followed by an abysmal one. The fashion business has huge ups and downs, and it’s nearly impossible to say whether Aritzia will be the next of the many fashion retailers to go down,” I said back in 2016. “I wouldn’t touch this stock even if it were a lot cheaper because the Canadian retail space is a dangerous place to invest.”

After my original “sell” recommendation, Aritzia stock went on to fall 40% to its bottom. Today, the stock has partially rebounded and is just a buck and change less than the price of my original sell recommendation. Although I stated that I wouldn’t touch the stock if it were cheaper, the circumstances have changed, and I do think the company is poised to fly higher due to a number of promising new developments.

Thanks to Meghan Markle and her affinity for the Canadian apparel maker, the Aritzia brand is now under the international spotlight. The world has taken notice that Aritzia’s fit for a duchess, and that’s a huge reason why her Babaton trench coat was sold out within six hours after the media identified the jacket at the Invictus Games.

Margins popped for the quarter, and if Markle continues sporting Aritzia in the public eye, there’s no question that margins could move sustainably higher.

Moreover, the strong performance of its new U.S. stores caught me off-guard. With a new level of brand recognition, I think Aritzia’s continued U.S. expansion could become a profoundly successful one, especially among millennial consumers, who are more likely to purchase articles of clothing that they don’t necessarily need.

Foolish takeaway

Given the evidence of that Aritzia’s U.S. expansion is going well and the increasing level of brand prestige, I think the stock looks exponentially more attractive than it did over a year ago. Fellow Fool contributor Will Ashworth is another former bear turned bull that thinks Aritzia could continue surging higher.

Given the new trajectory and international brand awareness, I think Aritzia looks like a $20 stock.

Stay hungry. Stay Foolish.

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 Joey Frenette has no position in any of the stocks mentioned.

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