The U.S. economy has been recovering from the ravages of the COVID-19 pandemic at a faster-than-expected pace, supported by multiple fiscal stimulus packages and the Fed’s continued dovish monetary policy stance. According to the Bureau of Economic Analysis (BEA), the country’s real GDP increased at a 6.4% annual rate in the first quarter ended March 31.
According to CNBC/Moody’s Analytics Rapid Update of economists’ forecasts, median GDP growth expected for the second quarter is 9.3%.Consequently, investors have been rotating into cyclical stocks that are well positioned to thrive in an economic recovery. Given surging inflation and rising benchmark Treasury yields, popular Reddit community wallstreetbets has also been focusing on cyclical stocks.
Academy Sports and Outdoors, Inc. (ASO)
ASO manufactures and sells outdoor recreational products and sporting goods across the country. The company has an established supply chain in the Southern states, through retail shops and distribution centers, as well as an e-commerce platform. ASO went public on October 2, 2020 through an initial public offering of 15.63 million shares priced at $13. Owned by the private equity firm KKR & Co. Inc., ASO had a pre-market valuation of $1.10 billion.
According to WSB, the stock is “criminally undervalued.” The community believes the company has significant untapped potential. Driven by rising interest from retail investors, ASO’s shares have gained 156.4% since their stock market debut, and 60.6% year-to-date.
ASO’s net revenues increased 16.6% year-over-year to a record $1.60 billion in its fiscal fourth quarter, ended January 30. This can be attributed to a 16.1% rise in comparable sales, and 60.7% rise in e-commerce sales. Its gross profit came in at $499.10 million, up 34.7% from the same period last year. Its pro forma adjusted net income improved 485.8% from the prior year quarter to $103.10 million, while its pro forma EPS stood at $1.09, representing a 373.9% rise from its year-ago value.
ASO’s strategically timed market debut and multiple secondary offerings have allowed it to generate substantial capital for its operations amid the fast-paced economic recovery. The company raised approximately $400 million in January to refinance its debt at lower rates, thereby augmenting its earnings potential. ASO had administered two non-dilutive secondary offerings since its public debut, which improved the stock’s liquidity. Furthermore, the company bought back nearly 3.23 million shares from underwriters during its second secondary offering earlier this month. This is expected to increase ASO’s earnings per share in the coming quarters.
Analysts expect ASO’s EPS to rise 8.1% year-over-year to $3.48 next year, and at a 23.1% rate per annum over the next five years. The company surpassed consensus EPS estimates in the last two quarters. ASO’s revenue is expected to rise 3.3% from the same period last year to $5.88 billion in the current year, and by 1.1% year-over-year to $5.94 billion next year.
It’s no surprise that ASO has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with the weighting of each optimized to improve overall performance.
The stock has an A grade for Momentum, and B for Growth and Value. Of the 34 stocks in the A-rated Athletics & Recreation industry, ASO is ranked #12.
Beyond what we’ve stated above, one can check out additional ASO Ratings for Sentiment, Stability and Quality here.
Ethan Allen Interiors Inc. (ETH)
ETH sells interior design products and home furnishings in North America, Asia, Europe and Middle East. The company’s operations can be categorized in two segments: wholesale and retail. It also maintains an online presence through the ethanallen.com website. ETH has an ISS Governance QualityScore of 1 (as of April 30), indicating minimal governance risk. The housing market and ancillary industry boom earlier this year made ETH one of the most talked about stocks in the wallstreetbets chatroom. Shares of ETH have gained 172% over the past year, and 55.3% year-to-date.
To prepare for the anticipated rise in demand amid the economic recovery, ETH strengthened its retail position by relocating and opening new design centers across the country. Because 75% of ETH’s products are manufactured in North America, the company has opened six new and relocated design centers across the U.S. over the past 12 months. The company embraced technology-driven projections through its proprietary 3D Room Planner technology to offer an immersive experience to potential customers. The customer satisfaction focused technology is expected to significantly increase the company’s clientele and operations.
For the third quarter, ended March 31, ETH’s net sales stood at $176.96 million, up 18.2% year-over-year. Its adjusted operating income improved 5,446.7% from the same period last year to $19.58 million. Its adjusted net income came in at $14.68 million, representing a 2,294.8% rise from the year-ago value. And its adjusted EPS increased 2800% from the prior year quarter to $0.58.
A $0.50 consensus EPS estimate for the current quarter, ending June 30, indicates a 433.3% improvement year-over-year. ETH has an impressive earnings surprise history as well; it beat the Street’s EPS estimates in each of the trailing four quarters. The company’s revenue is expected to rise 94.3% from the prior year quarter to $177.90 million in its fiscal year 2021 second quarter.
ETH’s POWR Ratings reflect this promising outlook. It has an overall B rating, which equates to Buy in our proprietary rating system. ETH has an A grade for Momentum and Quality, and a B grade for Growth. It is ranked #22 of 64 stocks in the A-rated Home Improvement & Goods industry.
We have also graded ETH for Sentiment, Stability and Value. Get all ETH Ratings here.
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ASO shares were trading at $33.50 per share on Tuesday morning, up $0.20 (+0.60%). Year-to-date, ASO has gained 61.60%, versus a 11.10% rise in the benchmark S&P 500 index during the same period.
About the Author: Aditi Ganguly
Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities. More...
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