Growth stocks have underperformed broader equity markets since the start of 2022. As federal banks are tightening the supply of money by raising interest rates, companies across sectors are finding it expensive to fund growth plans.
Typically, growth stocks trail major indices during a bear market. But they also deliver outsized gains in a bull run, allowing them to generate exponential returns.
Keeping these factors in mind, here’s one growth stock down 33% to buy before the next bull market resumes.
Is Aritzia stock a buy?
Aritzia (TSX:ATZ) is a Canada-based luxury retailer that was founded in 1984. The company went public in 2016 and has since tripled investor wealth in fewer than seven years, easily outpacing the TSX. But ATZ stock is currently down 33% from all-time highs, valuing it at a market cap of $4.55 billion.
It is a vertically integrated design house with more than 100 retail boutiques in Canada and the U.S. and a rapidly expanding online presence. Each of Aritzia’s retail stores is shortlisted after careful consideration regarding the location and unit economics.
To accelerate direct-to-consumer sales in a post-pandemic era, Aritzia has developed a diverse product catalog with a focus on fast fulfillment and delivery.
The company has increased its sales from $980 million in fiscal 2020 (ended in February) to $2 billion in the last four quarters. It aims to end fiscal 2023 with sales of around $2.05 billion equally distributed between Canada and the United States. Aritzia also expects retail sales to account for 65% of revenue, with the rest coming from e-commerce in fiscal 2023.
Analysts expect the company’s sales to touch $2.46 billion with adjusted earnings per share of $2.09. So, ATZ stock is currently priced at less than two times forward sales and 18 times forward earnings, which is very reasonable for a quality growth stock.
What’s next for Aritzia’s stock price and investors?
Aritzia intends to grow its top line in the upcoming decade on the back of geographic expansion, growth in online sales, and increased brand awareness. Its retail footprint has increased to 113 boutiques in 2023, up from just 28 boutiques in 2008, indicating annual growth rates of almost 10%.
Aritzia confirmed it will accelerate geographic expansion south of the border, which is also the largest retail market in the world. It is looking to capitalize on premier real estate locations for new outlets. Ideally, these locations will be highly visible and prominent, with an average size of 8,000 square feet, enabling robust consumer footfall.
The company claimed it will open between eight to 10 boutiques in the U.S. each year. The average payback period for each new boutique is between 12 and 18 months. It will also be present in 18 new markets in the U.S. by 2027. In the next four years, Aritzia will grow its total boutique count to 150 and increase its total square footage by 60%.
New retail store openings also drive online sales higher. For instance, e-commerce sales rise by almost 80% every time a boutique is opened in a new market. By the end of fiscal 2027, Aritzia expects online sales to account for 45% of total revenue, up from the current figure of 35%.
Armed with a solid balance sheet, analysts remain bullish on Aritzia stock. Right now, the TSX stock is priced at a discount of 50%, given consensus price target estimates.