The retail industry has been under fire lately, grappling with a list of challenges including suffering sales, store closures, and an ever-increasing shift toward e-commerce. In this week’s Forbes, Validea CEO John Reese suggests that battered share prices and historically low valuations in the industry could present opportunities for well-informed investors.
Reese outlines important factors to be considered when examining retail stocks:
- Comparable store sales
- Opening and closing of stores
- E-commerce presence
- Gross margins
- Price-earnings ratio
Using his guru-based screening models, Reese identifies four high-scoring stocks:
G-III Apparel Group, Ltd. (GIII) designs, manufactures and markets a range of company-owned and licensed apparel products. The company is favored for its price-earnings ratio, low leverage and liquidity. Its Price-sales ratio also is favorable.
Ulta Salon, Cosmetics & Fragrance (ULTA) operates specialty stores selling cosmetics, fragrance, haircare and skincare products, accessories and services, and earns high marks for quarter-over-quarter growth in earnings-per-share, a debt-free balance sheet and favorable return-on-equity.
Foot Locker (FL) is a shoe and apparel retailer the scores highly due to a favorable ratio of price-earnings to earnings-per-share growth as well as modest leverage and attractive average net profit margin.
TJX Companies (TJX) is an off-price apparel and home fashions retailer that gets a thumb’s up based on stable and consistently expanding earnings-per-share, return-on-equity, and the ability to pay off debt with earnings in less than two years.
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