Is Aritzia Stock a Good Buy?

With Aritzia trading roughly 40% off its all-time high, the stock offers a tonne of value, but is it a good investment to make right now?

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Over the last five years, Aritzia (TSX:ATZ) has been one of the most impressive growth stocks in the retail sector, let alone the entire Canadian stock market.

The women’s fashion retailer has seen a major increase in popularity as it leverages its powerful e-commerce platform, works with influencers and expands its store count, primarily across the United States.

The company’s growth has been impressive, especially when you consider that for much of the last five years, sales and operations were impacted by the pandemic.

However, even with this consistent performance, many investors are still concerned about Aritzia in the current market environment, especially since the majority of analysts, investors and economists still believe there could be a recession on the horizon.

So that leads us to the major question on everyone’s minds, is Aritzia stock a good buy today?

How impressive has Aritzia’s performance been?

Regardless of the price Aritzia is trading at, it’s worth adding the stock to your watchlist due to its incredible performance over the last five years, expanding its operations and growing its sales rapidly. However, now that it has become ultra-cheap, it’s certainly a stock you’ll want to keep an eye on.

In the last five years, its sales have increased from $743 million to just shy of $2.2 billion, an increase of 195%. That’s unbelievable growth for a fashion retailer, especially when you consider that it continued to perform well during the pandemic, with just a 12% drop in sales the first year, when stay-at-home orders were in place.

Furthermore, it’s not only its sales that have been growing at an exceptional pace. Aritzia’s earnings have also increased considerably over the last five years from $57 million to $188 million, an increase of 230%.

And the good news for investors is that Aritzia continues to have a tonne of potential going forward. It’s constantly opening new boutiques, particularly south of the border, and has been looking for new avenues of growth with the potential to add more men’s clothing to its stores.

Even in the current uncertain market environment, analysts estimate its sales will increase by over 13% per year for the next four years. And while earnings could dip this year (fiscal 2024) on lower margins, analysts expect its profit next year will come in 33% higher than what Aritzia reported in fiscal 2023.

Should you buy Aritzia in this market environment?

Given the growth potential Aritzia has and impressive track record it has established, the stock is ultra-cheap in today’s environment. There is, of course, more uncertainty and risk in the current climate, and analysts expect Aritzia’s earnings to temporarily dip this year. However, the potential returns you could earn still look as though they outweigh the risk.

There is certainly still the possibility that the stock could fall further, albeit not by much before it bottoms and starts to rally. However, if you plan to buy and hold for the long-term, though, now looks like an excellent time to gain exposure.

At roughly $37 a share, Aritzia is trading at 25.2 times its expected earnings in fiscal 2024. That may seem high, but it’s actually still lower than Aritzia’s three- and five-year average price-to-earnings ratio of 32.6 times and 36.3 times, respectively. Furthermore, Aritzia stock is trading at just 15 times its expected earnings next year, in fiscal 2025.

Therefore, while this high-potential growth stock is trading so cheaply, now is certainly a great opportunity to buy the stock, especially if you plan to hold it for years to come.

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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