The market has recovered much of its loss over the last three weeks with the Dow Jones gaining nearly 12% as retail stocks lead the way. Several of the largest retail stocks have posted 52 week highs, with a few posting all-time highs, despite the market trading 6% lower since the end of July.
However, there are several retail stocks that are growing much faster yet trading significantly lower than 52 week highs. I believe that 3 stocks in particular have shown incredible progress over the last year and are on pace to continue growing at a rapid rate and are trading at a discount. Below is a look at three stocks that have been forgotten, while larger stocks post new highs.
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Each of the stocks listed above posted new highs on Monday with improved fundamentals in a growing industry. While most of the fast growing retail stocks have reached, or are near, 52 week highs there are still a few that have been overlooked still trading near the middle of its range. I believe that three stocks in particular will begin trending higher in the immediate future to reflect the substantial fundamental gains made over the last year.
Chico's (NYSE:CHS) fell from its 52 week high in August during the sell-off within the market and has been unable to recover. The stock has lost 23% of its value over the last three months with no substantial news related to the company. And during the last 10 days when other retail stocks were trending higher, CHS has traded flat with a gain of 2.2%.
The company has drastically improved its earnings over the last year with large gains in both sales and income. During its most recent quarter its EPS increased 47% and its sales increased 12.8% to $550 million, the highest in its history. The company recently purchased Boston Proper which is a growing company with 15% growth in 2010 and still has potential for a large amount of growth.
CHS has no debt and $504 million in cash which gives it the flexibility to expand without hurting the company, along with returning a solid percentage on both assets and equity. The company has great financials and is well positioned to continue its trend of growth and increased sales. During the last 12 months the company has already posted $145 million in higher sales compared to 2010 and its new acquisition will add additional revenue from another growing company.
I believe the potential growth for this company is limitless with solid fundamentals and with two fast growing companies the stock should recover its losses and post new highs as the company continues to grow in the near future.
AnnTaylor Stores (ANN) has recovered nicely over the last month by posting a gain of 14% and erasing its loss since August. Yet the stock continues to trade 20% off its high despite its strongest fundamentals in over four years. The company reported one of its strongest quarters in many years with revenue of $558.2 million an increase of 15.4% year-over-year along with income that increased by 33%.
The company has drastically increased sales over the last 12 months compared to 2010, by more than $120 million. The company has no debt but has decreased its assets over the last few years and has $145.18 million in cash. The recent success of ANN has been a result of improved gross margins and management's control on costs. I believe the company will continue to improve over the next several years and create news highs with improved fundamentals.
But on a side note, the company's largest competitor happens to be Chico's, another undervalued stock, which are both specialty retailers with a focus on women's apparel.
Lululemon Athletica (LULU) is a specialty retailer that is much different from the other two companies on this list. The company is a designer and retailer of yoga-inspired apparel yet the company has a large assortment of apparel with clothes that have transitioned to the fitness industry rather than just yoga.
I am particularly bullish on this stock, more so than any other retail stock. Lululemon has built a brand by word of mouth with very little advertising, it was built from the ground up, by starting very small and expanding throughout time. Over the last four years, the company went from a small company with a loyal following to a leading retailer in women's fitness apparel.
The company had 117 total stores at the end of Q2 with 9 stores added during the quarter. The company announced that it plans to add 14 stores in Q3 which will be its largest expansion during one quarter. Which leads me to the reason I am so bullish on LULU; it's now expanding at a remarkable rate by adding new stores in different regions of the world, including Australia. It's also tapping into the e-commerce side of business by creating an online store for the online consumer which I believe will result in unprecedented growth for this company that is yet to tap its full potential.
During the company's most recent earnings report, it announced revenue that increased by nearly 40% and income that grew by more than 75% year-over-year. This growth was sparked by increased same-store-sells and sales from new locations. With the company expanding so quickly, along with building its brand at such a fast rate, I believe the next few quarters will show drastic gains in earnings. And the company has the finances to continue expanding with no debt and nearly $265 million in cash.
Because of the company's growth and expansion, many would label the stock as a momentum stock with a P/E of 50. While I am usually very cautious of stocks trading so high above earnings, I believe that LULU is appropriately priced because of its growth. With the stock losing 13% of its value over the last three months and earnings that continue to improve, I expect the ratios to become more attractive to the investor that is fearful of buying a stock that trades with such a high premium, and for the stock to become one of the largest gainers over the next year.
Each of the 12 stocks that posted 52 week highs are deserving of the position. Yet I believe the three stocks discussed have the same potential as any of the 12 stocks trading at new highs. Although LULU, ANN, and CHS are not near the size of Nike or Macy's, all three are presenting a stock that has traded lower but is growing at an incredible rate. As each company continues to expand and improve earnings, I believe each will trend substantially higher and potentially lead the retail industry in gains over the next year.
Disclosure: I am long DLTR, LULU. As with any investment, due diligence is required. The opinions in this article are not intended to be used to make a particular investment or follow a particular strategy.