1 Surprising Stock That has Survived the Market Selloff

Though it’s been a tough time for most retailers, Aritzia has outperformed the stock market this year.

| More on:
Women's fashion boutique Aritzia is a top stock to buy in September 2022.

Source: Getty Images

The stock market has been sliding for much of this year. Since January, the S&P/TSX Index is down over 8%. Most tech, consumer, and retail stocks have dropped further, while energy and commodity stocks have outperformed the market. 

However, one surprising stock has been remarkably robust throughout 2022. This trend could continue in the years ahead as the team executes its growth plan. Here’s why luxury retailer Aritzia Inc. (TSX:ATZ) has astonishingly outperformed the market and what lays ahead. 

Aritzia’s outperformance

The Vancouver-based retailer has lost just 2.8% of its value year-to-date. That’s significantly better than the TSX Index’s 8% plunge over the same period. What’s even more impressive is that Aritzia continues to see sales and earnings growth during a tough environment for consumers. 

Record inflation and lagging wages have sapped consumer demand this year. Retailers like Roots (TSX:ROOT) have underperformed the market. Luxury retailers such as Canada Goose (TSX:GOOS) have seen deeper plunges. This stock is down 54.5% year-to-date as consumers cut back on luxury coats and outerwear and spend more money on essentials like food and medicines this year. 

Meanwhile, rising costs have put pressure on most retailers’ profit margins. Lower sales and slimmer margins have created the perfect storm for retail stocks in Canada. 

That’s why Aritzia’s outperformance is surprising. The outperformance is driven by the company’s social media strategy and U.S. expansion. “The majority of our stores are in Canada but growth in the coming years will be primarily from the U.S.,” CEO Jennifer Wong said during a recent shareholder presentation. In 2023, nearly all the company’s new stores will be in the U.S.

Meanwhile, Aritzia has successfully positioned itself as the preferred brand of young celebrities and influencers. Celebrities such as Kendall Jenner, Hailey Bieber, and Meghan Markle have been spotted with Aritzia products, and social media influencers have gifted the brand a cult following. 

If these trends persist, the team expects to expand sales to $3.8 billion by fiscal 2027.

Stock valuation

Aritzia has managed to sustain its market value this year. However, underlying revenue and earnings have expanded over this period. The stock now trades at 33 times trailing twelve-month earnings per share. 

The stock also trades at just 1.5 times revenue and 8 times EBITDA (earnings before interest, taxes, depreciation, and amortization) in fiscal 2027. That means it’s undervalued if it achieves its long-term growth targets. 

The path ahead is far from easy. Aritzia faces the same pressures as other retailers – especially if inflation is persistent and the economy dips into a recession. Meanwhile, its U.S. expansion plan and social media strategy could fail to live up to expectations. 

However, it’s one of the few luxury retailers to survive the pandemic and ongoing bear market. That makes it an interesting target for investors seeking a durable growth stock. Keep an eye on this opportunity. 

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 Vishesh Raisinghani has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends ARITZIA INC. The Motley Fool has a disclosure policy.

More on Investing

Oil pumps against sunset
Investing

Oil or Tech? Why Choose When You Can Get Both in a Single Stock?

Tech stock Pason Systems (TSX:PSI) is exposed to the energy market boom.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Investing

Protect Against Inflation With 2 Top TSX Stocks

Here are two top TSX stocks that long-term investors concerned about inflation may want to consider in this time of…

Read more »

Woman has an idea
Tech Stocks

The Smartest Stocks to Buy With $20 Right Now and Hold Forever

These under-$20 stocks have the potential to grow further with time and deliver solid capital gains.

Read more »

A close up image of Canadian $20 Dollar bills
Dividend Stocks

TFSA Investors: Put $45,000 in These Top TSX Stocks and Watch Your Passive Income Roll In

Are you looking to retire early? Here are a few ideas about how your TFSA could earn a passive-income stream…

Read more »

Human Hand Placing A Coin On Increasing Coin Stacks In Front Of House
Dividend Stocks

Love Passive Income? Here’s How to Make Plenty of it as a Real Estate Investor

You could definitely create passive income by investing in pure real estate, but you could make just as much, if…

Read more »

Make a choice, path to success, sign
Dividend Stocks

2 High-Yielding Dividend Stocks You Can Buy and Hold for Years

These two high-yielding dividend stocks can be the perfect addition to your portfolio, as the bear market causes payout yields…

Read more »

A worker uses a laptop inside a restaurant.
Tech Stocks

Why Investors Shouldn’t Give Up on Shopify Just Yet

Here's why long-term investors may not want to throw in the towel just yet on e-commerce juggernaut Shopify (TSX:SHOP).

Read more »

Retirees sip their morning coffee outside.
Dividend Stocks

TFSA Wealth: How to Turn $88,000 Into $1 Million for Retirement

Canadians can use the TFSA to hold a basket of diversified equity investments, allowing you to turn a $88,000 investment…

Read more »