Is Aritzia Stock a Buy Before its Earnings Next Week?

Aritzia stock could be worth buying in 2023, as it looks undervalued before its third-quarter earnings event due next week.

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Aritzia (TSX:ATZ) is gearing up to release its November quarter financial results next week on January 11. ATZ stock fell 9.6% in 2022 to $47.35 per share after consistently rising for four consecutive years. Before we look at estimates and key expectations from its upcoming results and discuss whether the stock is worth buying before its upcoming earnings event, let’s take a closer look at what could be behind last year’s downside correction in Aritzia’s share prices.

Aritzia stock price movement

Aritzia started the year 2022 largely on a negative note, as its stock slid by 2.5% in the March quarter as growing concerns about high inflationary pressures raised the possibility of aggressive rate hikes in the near term that could lead to a recession. These economic worries coupled with continued global supply chain disruptions, triggered a broader market meltdown — especially in tech and retail stocks. With this, the selloff in ATZ stock also picked up the pace. These are some of the key reasons why its shares prices tanked by nearly 32% in the June 2022 quarter.

However, as Aritzia continued to post solid top and bottom-line growth, despite facing the supply chain crisis, its stock regained strength in the second half of the calendar year 2022. In the quarter ended in August 2022, Aritzia’s revenue rose 50% YoY (year over year) to $525.5 million with the help of strong sales momentum in its home market as well as in the United States. During the quarter, the Canadian luxury clothing company registered a 33% YoY increase in its e-commerce business. These factors pushed its adjusted quarterly earnings higher by 13% YoY to $0.44 per share.

Still, a strong 36% recovery in ATZ stock in the second half of the year couldn’t help it end the year on a positive note, making it look undervalued at the start of 2023.

Expectations from Aritzia Q3 earnings

According to Bay Street analysts’ latest estimates, Aritzia could register a 30% YoY increase in its total revenue to $589.1 million in the third quarter (Q3) of its fiscal year 2023 (ended in November). Its adjusted earnings for the quarter are estimated to be around $0.64 per share, reflecting a 4.9% growth from a year ago.

Interestingly, the Canadian apparel designer and retailer has consistently been beating analysts’ revenue and earnings estimates for the last 10 quarters in a row. Consistently surging demand for its products across geographical segments has helped the company achieve this milestone. And I wouldn’t be surprised if ATZ continues to beat Street’s estimates in the November quarter as well. While growing macroeconomic concerns might affect some retail businesses, I expect these challenges to have a minimal negative impact on Aritzia’s business growth, as they might not hugely trim the demand for its everyday luxury clothing.

Is ATZ stock worth buying in 2023?

I can’t deny that the ongoing economic uncertainties could keep ATZ stock volatile in the near term. However, it still looks cheap based on all the positive factors I’ve highlighted above, especially after its recent decline. That’s why I expect Aritzia stock to stage a sharp recovery in the near term and continue soaring with the help of its strong underlying fundamentals. Given that, it could be an opportunity for long-term investors to buy an amazing Canadian growth stock at a bargain in 2023.

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.

The Motley Fool has positions in and recommends Aritzia. The Motley Fool has a disclosure policy. Fool contributor Jitendra Parashar has no position in any of the stocks mentioned.

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