DXLG (DXLG) is a specialty retailer of big and tall men’s clothing and shoes in the United States and Canada. Its stores offer athletic apparel and dress clothes, in addition to formalwear, for purchase or rental. It sells its products in its locations and through other retailers.
This is a market that continues to grow and offers the potential for more international expansion as Western dietary habits are exported all over the world. Despite offering exposure to such a powerful trend, the company is remarkably cheap.
These are great reasons for the stock to outperform during ‘bear market rallies’ and for it to soar to new heights once a new bull market commences. Read on to find out why DXLG is our featured stock of the week…
Bearish Market Conditions
One caveat to any long idea in the current market environment is that we are in a bear market. Given the Fed’s posture and stubbornly high inflation, it’s likely going to be some time before market conditions genuinely improve.
Therefore, in the near-term, the stock could certainly struggle if the outlook continues to deteriorate. This is because DXLG is a small-cap stock which makes it more vulnerable to market swings and that its dependent on consumer spending which could be affected by a faltering economy.
However, bear markets are an ideal time to start building and accumulating positions in high-quality stocks with bright, long-term prospects. It’s also the time for investors to do research and learn about these companies’ businesses.
One major development over the past couple of decades is the rising rates of obesity in many parts of the world. As of 2019, about 40% of adults and 20% of children were considered obese.
While this poses a significant public health challenge, it does present an opportunity for DXLG which is the leading retailer of clothing for “big and tall” men. Thus, the company is likely to benefit from organic growth and also have the opportunity to expand into new markets.
This combination of organic growth and the addition of new locations is the winning formula behind some of the most successful restaurant and retail stocks in recent history. Another attractive characteristic for DXLG is that it hit new records in 2022 in terms of EPS and free cash flow which is more impressive given the challenging, operating environment.
DXLG is quite cheap with a P/E of 4.8 and a forward P/E of 10. This is much cheaper than the market average despite the company having higher profit margins at 17% vs 12%.
Additionally, the company should benefit from the easing of supply chain pressures, a decline in transportation costs, and improvements in inventories. This should also be supportive of margins. And, it’s also worth noting that rising recession risk is a concern, households have more than $2 trillion in savings which means this could be like the 00-02 recession when consumer spending managed to continue expanding despite the downturn.
DXLG is also a standout in the POWR Ratings with an overall B rating which translates to a Buy. A-rated stocks have delivered an annual performance of 21.1% which outpaces the S&P 500’s average annual gain of 8.0%.
What To Do Next?
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DXLG shares were trading at $6.63 per share on Wednesday morning, down $0.12 (-1.78%). Year-to-date, DXLG has gained 16.73%, versus a -18.46% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles. More...
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