High inflation, increasing interest rates, and uncertainty over the future trajectory of the economy weighed on high-growth Canadian stocks like Aritzia (TSX:ATZ). Given the macro headwinds, Aritzia stock is down about 23% from its 52-week high of $55.56. Further, it has underperformed the broader markets and has declined about 9.2% in 2023.
The pullback in Aritzia stocks seems unwarranted, especially as the company continues to produce stellar sales and earnings growth. Thus, this decline is a perfect opportunity for investors to add a high-growth stock to their portfolios now and outpace the benchmark index by a wide margin in the long term. Let’s look at the factors that make Aritzia an attractive bet at current levels.
Aritzia: A top stock in the retail sector
Aritzia is a top Canadian fashion brand. The company commands a market cap of $4.74 billion and has multiplied its investors’ wealth over the past several years. Including the recent decline in its price, Aritzia stock has still gained over 245% in five years. This capital gain represents an average annualized growth rate of over 28%, which is lucrative.
However, what stands out for this consumer company is its ability to drive traffic, regardless of market conditions. This multichannel retailer’s net revenue, adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization), and adjusted net income grew at a CAGR (compound annual growth rate) of 19%, 22% and 24%, respectively, from fiscal 2018 to fiscal 2022.
Furthermore, the momentum in its business has sustained in fiscal 2023, despite a challenging macro environment. Its top line increased by 48.3% year to date in fiscal 2023. At the same time, its adjusted earnings per share grew 22.7%.
Its solid growth amid a challenging operating environment makes Aritzia a top stock in the retail sector.
Why is Aritzia a good stock to buy?
While Aritzia impressed with its strong growth rate, management remains confident about growing its business at a breakneck pace in the coming years. The company benefits from solid customer demand and a good mix of full-priced sales.
The strong customer demand and boutique expansion strategy drive its market share, sales, and profit. It is expanding its boutiques at a decent pace and plans to open eight to 10 new boutiques every year in high-growth markets like the United States. By 2027, Aritzia plans to significantly lift its square footage in the U.S.
Besides expanding its boutique network, Aritzia is investing in strengthening its e-commerce business. Notably, its e-commerce business is growing rapidly, and with continued investments, the division will likely deliver solid sales in the coming years.
Thanks to the ongoing momentum in the business and boutique expansion, Aritzia expects its revenues to grow at a CAGR of 15-17% through 2027. At the same time, its earnings per share is forecasted to grow faster than its revenues.
Bottom line
Aritzia’s strong product demand, a favourable mix of full-priced sales, boutique expansion, and upbeat guidance supports my bullish outlook. Also, Aritzia is trading at a price-to-earnings multiple of 21.3, which is well below its pre-pandemic levels and provides a solid entry point.
