Aritzia Stock: Does the Recovery Rally Have Legs?

Aritzia (TSX:ATZ) stock is getting quite cheap relative to its long-term growth potential.

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Shares of women’s clothing retailer Aritzia (TSX:ATZ) recently corrected after briefly eclipsing $40 per share. Today, the stock sits at around $35 and change per share as the recovery rally looks to make its next move. Undoubtedly, despite the recent correction, Aritzia is still up considerably from its lows hit back in November 2023.

Though the company faces turbulence, investors shouldn’t throw in the towel on the firm quite yet. Not as the Canadian consumer looks to gain ground after more than a year of inflation’s impact. Though I have no idea if Aritzia stock is due to pull back below the $30 mark again, I am enticed by the longer-term growth story in the name. As a $3.9 billion company, there’s a lot of market share to grab as the firm looks to grow at home and abroad.

Aritzia stock: Looking cheap when looking at the year ahead

At the time of writing, shares of ATZ are anything but cheap at 42.42 times trailing price to earnings (P/E). On a forward-looking basis, shares look quite cheaper at around 19.2 times forward P/E. Of course, only time will tell where earnings head from here as the company looks to face a potential economic hailstorm in Canada.

Just because inflation has come down quite a bit from its highs doesn’t mean discretionary (disposable) incomes are going to be in a more normalized spot. If anything, the Bank of Canada may have enough reason to take its time when it comes to rate cuts. Undoubtedly, if rates don’t fall as quickly as investors would like, the TSX Index may have to pull the brakes on its rally.

The real question is whether the U.S. expansion will unlock next-level growth for the firm as it seeks to bring its brand to new markets. The company is shooting to grow its U.S. store count by close to 90 by 2027. That’s a mildly ambitious plan that could precede a much larger expansion down south.

Of course, only time will tell if U.S. consumers will embrace the Aritzia brand as Canadians have. Personally, I think there’s a good chance that the U.S. growth story could be even more attractive than the Candian one, especially given American consumers have shown they’re more than willing to spend on upscale goods, even amid tough times. Indeed, the company has a lot to gain from its multi-year push into the American market.

The Foolish bottom line on ATZ stock

As economic turbulence dies down and America’s economy looks to really flex its muscles, my guess is that Aritzia’s U.S. business could be one of the main reasons to give ATZ stock the benefit of the doubt. With that, I think Artizia stock ought to be worth a richer multiple. Whether Aritzia stock can gain one and march toward all-time highs within the medium term, however, remains to be seen. Either way, I view the stock as a great low-cost growth play for young investors to watch closely.

Personally, I view Aritzia as a great buy on the recent pullback, as there’s more than enough room for upside in 2024 and 2025.

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 Joey Frenette 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.

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