With all the changes in the retail sector over the last decade, Aritzia (TSX:ATZ), the women’s fashion and retail stock, and its impressive performance in growing both its operations and share price can’t be ignored.
The entire retail sector has faced challenges in recent years, particularly from the rise in popularity and ease of shopping online, as well as the pandemic that caused significant and lengthy store closures. And now, with inflation on the rise, retailers continue to face significant headwinds.
Despite these headwinds, though, Aritzia has continued to demonstrate why it’s one of the most impressive discretionary retail stocks you can buy. In fact, not only has it overcome many of the economic headwinds, but in some cases, it has even used these disruptions against its competition as an advantage.
However, after a tough year in 2023 and recovering early to start 2024, Aritzia stock has been trading range-bound over the last few months.
So, let’s look at what’s going on with Aritzia stock and whether the stock is trading cheaply enough to be worth investing in today.
After a tough 2023, Aritzia stock is looking forward to its recovery
2023 was a tough year for many stocks, especially discretionary retailers like Aritzia. However, with the worst behind us and Aritzia’s track record of weathering economic storms, there’s a lot to be excited about regarding Aritzia’s future.
For example, in the past, the company has effectively used challenging periods as opportunities to refine its business model and expand its market share, such as its early bet on e-commerce.
Long before the pandemic, Aritzia recognized the potential of online shopping not just as a disruptor to the retail industry but as a potential catalyst for growth.
This foresight paid off during the pandemic lockdowns because although physical stores were closed for lengthy periods, Aritzia’s e-commerce platform thrived, substantially boosting its sales and brand recognition.
The benefits of its aggressive online strategy extend beyond just its revenue growth, though. Its e-commerce platform has served as a low-cost method for Aritzia to penetrate new markets, particularly in the United States.
By understanding where its products resonate with consumers, Aritzia has been able to open new boutiques and expand its operations rapidly and strategically.
This goes to show how impressive Aritzia’s management has been, in addition to how well its products have resonated with consumers, allowing the company to consistently open new stores and rapidly grow both its sales and profitability.
So, although the inflationary pressures of 2023 presented a significant hurdle (escalating costs and dampening consumer demand for discretionary goods), analysts are expecting a recovery in margins and, consequently, profitability in 2024, which could lead to a significant recovery in the share price.
For now, though, the stock is trading range-bound as investors wait and see how the recovery progresses, particularly with Aritzia scheduled to report earnings on May 1st.
Is the retailer worth buying today?
With Aritzia stock trading below $35, the impressive Canadian growth stock is certainly still undervalued. In fact, right now, Aritzia trades at just 20.8 times its forward earnings. That’s well below its three- and five-year average forward price-to-earnings (P/E) ratios of 27 and 36.4 times, respectively.
Furthermore, analysts strongly expect a recovery in its normalized earnings per share (EPS) over the next year. After Aritzia reports earnings on May 1st, the next four quarters following, analysts are predicting it will earn $1.84 in normalized EPS. That would give Aritzia a forward P/E ratio today of just 18.6 times, showing just how cheap it is.
Therefore, with Artitzia trading undervalued and continuing to have years of growth potential ahead, particularly south of the border, it’s certainly one of the top Canadian growth stocks to watch over the coming months.
However, given the uncertainty of the market and economy today, you may want to wait until it reports earnings at the beginning of May in order to ensure that the worst is behind Aritzia stock and the retailer can get back to doing what it does best, expanding its business and growing shareholder value.
