Despite prevailing negative sentiments, any drawdown in fundamentally strong retail stocks Torrid Holdings Inc. (CURV), The Aaron's Company, Inc. (AAN), and Envela Corporation (ELA) is expected to be temporary. Moreover, trading at attractive valuations, these stocks have limited downside risk and significant upside potential that bargain hunters could capitalize on when the tide turns.
Despite a slight moderation in inflation during March, as reported yesterday, the minutes of the FOMC’s March meeting released yesterday didn’t make for good reading for investors and other market participants.
According to a presentation from the staff members of the Federal Reserve, the fallout of the banking crisis that unraveled last month could tilt the economy. The meeting summary predicted “a mild recession starting later this year, with a recovery over the subsequent two years.”
During his recent interview, even the Oracle of Omaha concurred that it's “a tougher world” out there for many businesses.
With the retail sales data that is due tomorrow expected to echo the bearish sentiments reflected in the recent employment data, the Fed’s projection regarding the possibility of an economic slowdown may not be off the mark at all. Here’s WSJ’s Nick Timiraos foreseeing softened consumer demand for March in the aftermath of the banking crisis.
While a potential lull might hurt the near-term prospects of retail businesses, an inevitable turnaround could reward investors willing to load up on fundamentally strong and yet attractively valued shares.
In view of the above context, let’s take a closer look at the featured stocks.
Torrid Holdings Inc. (CURV)
CURV is a direct-to-consumer brand that designs, develops, and merchandises apparel, intimates, and accessories in North America. The company offers its customers a seamless experience of the brands in its stable, such as Torrid, Torrid Curve, CURV, and Lovesick, through its unified commerce platform, which includes its e-commerce and retail stores.
On December 15, 2022, CURV announced the launch of its resale program in partnership with thredUP (TDUP), thereby becoming the first plus-size brand to leverage TDUP’s Resale-as-a-Service (RaaS) for its Clean Out program.
Under this program, CURV’s customers in the United States can generate a prepaid shipping label from torrid.thredup.com, fill any shippable box with apparel, shoes, and accessories from any brand, and ship it to thredUP for free and in exchange for a Torrid shopping credit for items sold.
For the fiscal year that ended January 28, 2023, despite a 3% decline in average spending per customer, CURV’s net sales only decreased marginally to $1.29 billion, which was at the upper end of the company’s expectations. During the same period, the company’s adjusted EBITDA came in at $152.35 million, while its net income came in at $50.21 million, compared to a net loss of $29.94 million during the previous fiscal.
As a result, CURV’s adjusted net earnings for the fiscal came in at $0.48 per share.
Analysts expect CURV’s revenue for the fiscal year 2024 to increase by 0.4% year-over-year to $1.29 billion, in line with the company’s guidance. During the same period, its EPS is expected to come in at $0.46. Both revenue and EPS are expected to increase by a further 4.5% and 24.5% to come in at $1.35 billion and $0.57, respectively.
CURV has gained 58% over the past month to close its last trading session at $4.06. Despite the significant gains, the stock is trading at 9.17x its forward earnings, 33.9% below the industry average of 13.87x.
CURV has an overall POWR Ratings of B, which translates to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
CURV also has a B grade for Value and Quality. It is ranked #14 of 45 stocks in the Specialty Retailers industry.
Click here for additional POWR Ratings for CURV’s Stability, Sentiment, Growth, and Momentum.
The Aaron's Company, Inc. (AAN)
AAN is an omnichannel, technology-enabled lease-to-own (LTO) and retail purchase solutions provider. The company operates through two segments: Aaron's Business and BrandsMart.
On April 4, AAN paid out its quarterly cash dividend of $0.125, representing an increase of over 11% from the previous quarterly cash dividend of $0.1125 per share.
AAN pays $0.50 per share as its annual dividend. This translates to a forward yield of 4.78% at the current price, higher than its 4-year average dividend yield of 1.92%.
For the fiscal year 2022, driven by the BrandsMart acquisition, AAN’s revenues increased 21.9% year-over-year to $2.25 billion, while its gross profit also increased marginally to come in at $1.16 billion. During the same period, the company’s adjusted EBITDA and non-GAAP net earnings came in at $165.76 million and $64.76 million (or $2.07 per share).
Analysts expect AAN’s revenue for the fiscal year 2023 to increase by 0.3% year-over-year to $2.26 billion, while its EPS is expected to come in at $0.92. Both revenue and EPS are expected to increase by a further 2% and 45.8% during the next fiscal to come in at $2.30 billion and $1.34, respectively.
Moreover, AAN has an impressive history of surpassing consensus EPS estimates in each of the trailing four quarters. Over the past six months, AAN’s stock has gained 14.9% to close the last trading session at $10.47. The stock is trading at 11.38x its forward earnings, 18% below the industry average of 13.87x.
AAN’s robust fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system. It also has a B grade for Growth, Value, Sentiment, and Quality.
AAN is ranked #6 of 45 stocks in the Specialty Retailers industry. Click here for additional POWR Ratings for Stability and Momentum of AAN.
Envela Corporation (ELA)
ELA is involved in re-commerce businesses conducted both retail and wholesale through distributors, resellers, brick-and-mortar stores, and online. The company operates through two segments represented by its two subsidiaries: DGSE, LLC (DGSE) and ECHG, LLC (ECHG).
On April 6, ELA announced that it expects to open at least four new retail stores by the end of the third quarter this year, with the first of those planned for Phoenix, Arizona. The company expects these brick-and-mortar locations intended for new markets will complement its existing footprint in Dallas and Charleston and play a crucial role in its quest to double its retail business in the next two years.
On March 17, ELA announced that its board of directors had authorized a share repurchase program for up to 1 million shares of its outstanding common stock. Purchases under the program may be made from time to time in the open market in accordance with applicable laws, rules, and regulations, depending upon prevailing market conditions and other factors.
While being a testament to the confidence of the company’s management in its prospects, this repurchase program would also increase the intrinsic value of the holdings of the existing shareholders.
For the fiscal year ended December 31, 2022, ELA’s revenue increased by 29.6% year-over-year to $182.69 million. During the same period, the company’s gross margin increased by 43.6% year-over-year to $44.83 million, while its operating income increased by 46.8% year-over-year to $13.95 million.
As a result, ELA’s net income and earnings per share for the fiscal year increased 56.1% and 56.8% year-over-year to $15.69 million and $0.58 per share, respectively. The company’s total assets stood at $71.28 million as of December 31, 2022, compared to $59.27 million as of December 31, 2021.
ELA’s revenue for the fiscal year 2023 is expected to increase by 7.7% year-over-year to $196.74 million, while its EPS is expected to come in at $0.28. Its revenue and EPS are expected to increase by a further 11.5% and 52.7% during the next fiscal year to come in at $219.45 million and $0.42, respectively.
Moreover, ELA has impressed by surpassing consensus EPS estimates in three of the trailing four quarters. The stock has gained 42.1% over the past six months and 47% over the past year to close the last trading session at $6.95. Its forward EV/Sales multiple of 0.98 is 9.5% below the industry average of 1.08.
ELA has an overall rating of B, which equates to a Buy in our POWR Ratings system. It also has a B grade for Sentiment.
ELA is ranked #15 in the same industry. Click here for additional POWR Ratings for the stock’s Growth, Momentum, Value, Stability, and Quality.
What To Do Next?
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What gives these stocks the right stuff to become big winners, even in this brutal stock market?
First, because they are all low priced companies with the most upside potential in today’s volatile markets.
But even more important, is that they are all top Buy rated stocks according to our coveted POWR Ratings system and they excel in key areas of growth, sentiment and momentum.
Click below now to see these 3 exciting stocks which could double or more in the year ahead.
CURV shares were trading at $4.14 per share on Thursday afternoon, up $0.08 (+1.97%). Year-to-date, CURV has gained 39.86%, versus a 7.99% rise in the benchmark S&P 500 index during the same period.
About the Author: Santanu Roy
Having been fascinated by the traditional and evolving factors that affect investment decisions, Santanu decided to pursue a career as an investment analyst. Prior to his switch to investment research, he was a process associate at Cognizant. With a master's degree in business administration and a fundamental approach to analyzing businesses, he aims to help retail investors identify the best long-term investment opportunities.
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