Aritzia Stock Has Slumped 20% From its November High, so It’s a Great Deal Now

Here’s why Aritzia has the potential to nearly double its share price over the next 12 months, and it’s one of the best stocks to buy now.

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There is no shortage of stocks trading cheaply these days, giving investors the opportunity to take advantage of these discounts and buy stocks for their portfolios that they can hold for years. However, while many stocks are undervalued, the best investments will be in stocks that trade cheaply but are also some of the top companies in Canada, such as Aritzia (TSX:ATZ) stock.

When you buy a good stock undervalued, you have the potential to see high-quality returns when it eventually rallies back to fair value. However, when you buy a high-quality stock undervalued, it not only offers attractive returns when it recovers in price, but it also years of growth potential, which is why these stocks are the best investments you can make.

So if you’ve got cash you’re looking to put to work in this highly opportune environment, here’s why buying Aritzia stock is one of the best investments you can make today.

Aritzia stock has been expanding at an impressive pace

Despite the rising popularity of e-commerce in recent years and the pandemic’s effect on the retail sector due to the lengthy lockdowns, impressively, Aritzia has been able to continue expanding its business and growing at a rapid pace.

The fashion retailer’s products are constantly in demand, and thanks to its commitment to building out its e-commerce platform prior to the pandemic, Aritzia has actually been able to benefit from the growing popularity of e-commerce rather than being negatively impacted by it.

In fact, while it continues to expand its store count across North America, having a high-quality e-commerce platform is actually very helpful, as it can help identify high-potential regions where Aritzia should be opening new stores.

This strategy has led the stock to grow its sales from $980 million in the year leading up to the pandemic to over $2 billion in the last 12 months.

Furthermore, its normalized earnings per share (EPS) have increased from $0.81 to over $1.60 through that stretch, which is incredibly fast growth for a retail stock like Aritzia.

And considering that it continues to have significant growth potential going forward, being able to buy the stock at a discount today makes Aritzia one of the best options investors have in this environment.

The fashion retailer continues to have a long runway of growth

Considering that the majority of Aritzia stores are still located north of the border, the stock has years of growth potential as it continues to open new boutiques in the United States.

In fact, even with inflation that’s still higher than normal and a potential recession on the horizon, analysts still expect it to grow its sale by more than 15% in each of the next two years. That’s not all, though.

Analysts also estimate that its normalized EPS will increase by over 18% this year, and as cost pressures diminish while inflation comes under control, its normalized EPS is expected to grow another 28% next year.

Therefore, with Aritzia stock now trading at a forward price-to-earnings (P/E) ratio of just 21.4 times, below its average over the last two years of 29.7 times, it’s one of the best stocks to buy now.

Not only is there a tonne of potential for investors to earn big returns if Aritzia can rally back to a forward P/E ratio of 29 times, but with the growth potential of its business, its stock has the potential to reach more than $82 a share over the next 12 months (P/E of 29.7 times its expected fiscal 2025 earnings of $2.77), nearly double where it trades today.

Therefore, while high-quality stocks like Aritzia trade at a discount, they’re undoubtedly some of the best investments you can buy in this market environment.

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 Daniel Da Costa has positions in Aritzia. The Motley Fool has positions in and recommends Aritzia. The Motley Fool has a disclosure policy.

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