6 Rallying Retail Stocks With Strong Sources Of Profitability

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Includes: DG, FINL, FL, PVH, ROST, TLRD
by: Kapitall

If you believe that the US recovery is gaining momentum and that consumers may start spending more as a result, here's a list you may be interested in.

We ran a screen on the retail industry for stocks currently rallying above their 20-day, 50-day, and 200-day moving averages. We then ran DuPont analysis on these names to find those with strong sources of profitability.

DuPont analyzes return on equity (ROE, or net income/equity) profitability by breaking ROE up into three components:

ROE
= (Net Profit/Equity)
= (Net profit/Sales)*(Sales/Assets)*(Assets/Equity)
= (Net Profit margin)*(Asset turnover)*(Leverage ratio)

It therefore focuses on companies with the following positive characteristics: Increasing ROE along with,

  • Decreasing leverage, (i.e. decreasing Asset/Equity ratio)
  • Improving asset use efficiency (i.e. increasing Sales/Assets ratio) and improving net profit margin (i.e. increasing Net Income/Sales ratio)

Companies with all of these characteristics are experiencing increasing profits due to operations and not to increased use of financial leverage.

Interactive Chart: Press Play to compare changes in analyst ratings over the last two years for the stocks mentioned below. Analyst ratings sourced from Zacks Investment Research.‬

We also created a price-weighted index of the stocks mentioned below, and monitored the performance of the list relative to the S&P 500 index over the last month. To access a complete analysis of this list's recent performance, click here.

Do you think these companies have strong operations? Use this list as a starting point for your own analysis.

1. Dollar General Corporation (NYSE:DG): Operates as a discount retailer of general merchandise in the southern, southwestern, midwestern, and eastern United States. The stock is currently trading 0.73% above its 20-day moving average, 2.60% above its 50-day MA, and 15.16% above its 200-day MA. MRQ net profit margin at 4.76% vs. 3.97% y/y. MRQ sales/assets at 0.369 vs. 0.345 y/y. MRQ assets/equity at 2.138 vs. 2.449 y/y.

2. Finish Line Inc. (NASDAQ:FINL): Operates as a mall-based specialty retailer in the United States. The stock is currently trading 7.85% above its 20-day moving average, 13.94% above its 50-day MA, and 14.30% above its 200-day MA. MRQ net profit margin at 1.97% vs. 1.58% y/y. MRQ sales/assets at 0.412 vs. 0.386 y/y. MRQ assets/equity at 1.394 vs. 1.463 y/y.

3. Foot Locker, Inc. (NYSE:FL): Operates as a retailer of athletic footwear and apparel. The stock is currently trading 5.90% above its 20-day moving average, 12.32% above its 50-day MA, and 25.93% above its 200-day MA. MRQ net profit margin at 4.73% vs. 4.06% y/y. MRQ sales/assets at 0.458 vs. 0.44 y/y. MRQ assets/equity at 1.455 vs. 1.472 y/y.

4. The Men's Wearhouse, Inc. (MW): Operates as a specialty retailer of men's suits in the United States and Canada. The stock is currently trading 8.90% above its 20-day moving average, 15.80% above its 50-day MA, and 27.10% above its 200-day MA. MRQ net profit margin at 6.82% vs. 4.59% y/y. MRQ sales/assets at 0.405 vs. 0.391 y/y. MRQ assets/equity at 1.402 vs. 1.425 y/y.

5. Phillips-Van Heusen Corp. (NYSE:PVH): Designs and markets branded dress shirts, neckwear, sportswear, footwear, and other related products worldwide. The stock is currently trading 4.59% above its 20-day moving average, 10.50% above its 50-day MA, and 20.61% above its 200-day MA. MRQ net profit margin at 6.79% vs. 6.58% y/y. MRQ sales/assets at 0.24 vs. 0.221 y/y. MRQ assets/equity at 2.485 vs. 2.846 y/y.

6. Ross Stores Inc. (NASDAQ:ROST): Operates off-price retail apparel and home accessories stores under the Ross Dress for Less and dd's DISCOUNTS brand names in the United States. The stock is currently trading 1.00% above its 20-day moving average, 4.78% above its 50-day MA, and 23.09% above its 200-day MA. MRQ net profit margin at 7.04% vs. 6.48% y/y. MRQ sales/assets at 0.643 vs. 0.633 y/y. MRQ assets/equity at 2.199 vs. 2.305 y/y.

*Accounting data sourced from Google Finance, all other data sourced from Finviz.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.