What a brutal six months it’s been for Torrid. The stock has dropped 56.9% and now trades at $2.81, rattling many shareholders. This was partly due to its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy Torrid, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think Torrid Will Underperform?
Even though the stock has become cheaper, we don't have much confidence in Torrid. Here are three reasons why we avoid CURV and a stock we'd rather own.
1. Shrinking Same-Store Sales Indicate Waning Demand
Same-store sales show the change in sales for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year. This is a key performance indicator because it measures organic growth.
Torrid’s demand has been shrinking over the last two years as its same-store sales have averaged 7% annual declines.
2. Revenue Projections Show Stormy Skies Ahead
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Torrid’s revenue to drop by 6.1%, a decrease from This projection doesn't excite us and indicates its products will see some demand headwinds.
3. EPS Trending Down
Analyzing the change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Torrid’s full-year EPS dropped significantly over the last three years. In a mature sector such as consumer retail, we tend to steer our readers away from companies with falling EPS because it could imply changing secular trends and preferences. If the tide turns unexpectedly, Torrid’s low margin of safety could leave its stock price susceptible to large downswings.
Final Judgment
Torrid doesn’t pass our quality test. Following the recent decline, the stock trades at 22.3× forward P/E (or $2.81 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think other companies feature superior fundamentals at the moment. Let us point you toward a fast-growing restaurant franchise with an A+ ranch dressing sauce.
Stocks We Would Buy Instead of Torrid
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