It appears as though we are in the middle of another specialty retail rout. However, this one is more widespread and has occurred more subtly than the what we saw in the summer of 2017. During that period, some specialty retailers took the brunt of the damage, and the overreaction created great opportunity.
It might be different this time. There are a host of retailers trading at seemingly low forward price-to-earnings ratios (list to follow). Unless the market has it all wrong, that may be signaling doubts about the veracity of the estimates. Or, given the economic circumstances, the market may be re-pricing some retailers in order to account for the possibility that consumers will cut back spending in this inflationary environment. Or, perhaps, it is perceived that there is a recession on the way.
I am on board with the recession theory; I don't see how the Federal Reserve combats the current inflation mess without stunting GDP to the point of recession. But then again, my economics degree was based on the Ludwig Von Mises Austrian School of Economics.
The list of retailers with market caps in excess of $1 billion that are trading at less than 10x next year's consensus estimates is large and includes the following companies, which are listed by name, ticker symbol, forward P/E estimate and the stock's year-to-date performance. This is not an exhaustive list; there are many others, but this will give you an idea.
Hibbett (HIBB) , 4.1, down 40%
Macy's (M) , 5.7, down 7%
Buckle (BKE) , 5.8, down 27%
Sally Beauty Holdings (SBH) , 5.8, down 17%
Victoria's Secret (VSCO) , 5.9, down 18%
American Eagle Outfitters (AEO) , 6.1, down 40%
Guess? (GES) , 6.2, down 4.4%
Gap (GPS) , 6.4, down 29%
Sportsman's Warehouse (SPWH) , 6.7, down 15%
Foot Locker (FL) , 6.8, down 33%
Kohl's (KSS) , 7.3, up 19%
Urban Outfitters (URBN) , 7.3, down 16%
DICK's Sporting Goods (DKS) , 7.7, down 15.5%
Designer Brands (DBI) , 7.5, up 2.4%
Nordstrom (JWN) , 7.8, up 16%
Tapestry (TPR) , 7.9, down 20%
Genesco (GCO) , 8, up 1.3%
Best Buy (BBY) , 8.7, down 9%
Walgreens Boots Alliance (WBA) , 9.2, down 14%
While I might take a nibble at some retail at some point (I still have positions in Fossil Group (FOSL) and Cato Corp. (CATO) ), it would have to be in an opportunistic "throw the baby out with the bathwater" trading day or other opportunistic situation. Given the current economic state, I don't see the seemingly low forward P/E ratios as particularly attractive.
