Aritzia Stock: Should You Buy Now?

Aritzia has the potential to make its shareholders very rich. The pullback provides an entry near the current levels.

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

Source: Getty Images

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.

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

More on Investing

Tech Stocks

1 Under-the-Radar Beneficiary From the Rise of ChatGPT

ChatGPT will benefit AI-enabled stocks like Docebo (TSX:DCBO).

Read more »

money while you sleep

Worried About Market Volatility? 3 Defensive Stocks for Better Sleep Tonight

Risk-averse investors can sleep better and seek safety in three defensive stocks to counter not only a recession but heightened…

Read more »

Businessman holding AI cloud
Tech Stocks

TFSA: 2 AI Growth Stocks for Your $6,500 Contribution

Here are two of the best AI stocks to buy in Canada in 2023.

Read more »

edit Safety First illustration

Add a Margin of Safety With 3 Consumer Staples Stocks

Are you looking for stocks that could give your portfolio a margin of safety? Buy these three consumer staples stocks!

Read more »

Man data analyze

TFSA Investors: The 4 Very Best TSX Stocks to Own This Decade

TFSA investors should look to snatch up TSX stocks like Enbridge Inc. (TSX:ENB) and goeasy Ltd. (TSX:GSY) in March.

Read more »

retirees and finances
Dividend Stocks

Retirees: 3 Ideal Stocks to Buy in a Bearish Market

Given their low-risk businesses and stable cash flows, these three Canadian stocks are ideal buys for risk-averse retirees.

Read more »

edit Colleagues chat over ketchup chips
Tech Stocks

The Best Stocks to Invest $50,000 in Right Now

You can create a portfolio of undervalued stocks with $50,000 right now. Here are three such stocks you can add…

Read more »

data analyze research
Dividend Stocks

3 Dividend Powerhouses to Buy for Reliable Passive Income

Are you seeking passive income? These three Canadian stocks are reliable investments for generate steady income.

Read more »