Retailers are overhauling their operations as technology redefines the shopping experience. One initiative that has proven effective is the expansion into e-commerce, which has helped the industry sustain its same-store sales growth and keep pace with the S&P 500’s 6% return over the past six months.
Regardless of these results, a cautious approach is imperative as many companies in this space can be value traps. Keeping that in mind, here is one consumer stock boasting a durable advantage and two best left ignored.
Two Consumer Retail Stocks to Sell:
Lithia (LAD)
Market Cap: $7.31 billion
With a strong presence in the Western US, Lithia Motors (NYSE: LAD) sells a wide range of vehicles, including new and used cars, trucks, SUVs, and luxury vehicles from various manufacturers.
Why Is LAD Not Exciting?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 15.5%
- High net-debt-to-EBITDA ratio of 8× could force the company to raise capital at unfavorable terms if market conditions deteriorate
At $301.32 per share, Lithia trades at 8.4x forward P/E. To fully understand why you should be careful with LAD, check out our full research report (it’s free).
BJ's (BJ)
Market Cap: $13.45 billion
Appealing to the budget-conscious individual shopping for a household, BJ’s Wholesale Club (NYSE: BJ) is a membership-only retail chain that sells groceries, appliances, electronics, and household items, often in bulk quantities.
Why Are We Hesitant About BJ?
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Gross margin of 18.5% is below its competitors, leaving less money for marketing and promotions
- Operating margin of 3.9% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
BJ's is trading at $102.60 per share, or 22.5x forward P/E. If you’re considering BJ for your portfolio, see our FREE research report to learn more.
One Consumer Retail Stock to Watch:
Boot Barn (BOOT)
Market Cap: $5.72 billion
With a strong store presence in Texas, California, Florida, and Oklahoma, Boot Barn (NYSE: BOOT) is a western-inspired apparel and footwear retailer.
Why Are We Positive On BOOT?
- Aggressive strategy of rolling out new stores to gobble up whitespace is prudent given its same-store sales growth
- Comparable store sales rose by 4.8% on average over the past two years, demonstrating its ability to drive increased spending at existing locations
- Demand for the next 12 months is expected to accelerate above its three-year trend as Wall Street forecasts robust revenue growth of 14.4%
Boot Barn’s stock price of $187.99 implies a valuation ratio of 23x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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