Increasing COVID-19 cases due to the rapid spread of the highly transmissible Delta variants have been prompting new pandemic restrictions in the United States. According to Bianco Research President Jim Bianco, it could emerge as the “toughest risk for investors to get their head around.” In addition, fears surrounding the potential for a surge in inflation to push the Federal Reserve to abandon its accommodative monetary policy much sooner than intended have fostered significant volatility in the stock market.
With the consumer price index still surging and fears of a slowdown in economic activity still lurking, market volatility is probably here to stay for the foreseeable future. However, amid this environment, investors could bet on stocks that have generated momentum lately and are well-positioned to maintain their momentum irrespective of the market’s movements. Investors’ confidence in momentum stocks is evident in the Invesco DWA Momentum ETF’s (PDP) 6.9% returns over the past six months.
Foot Locker, Inc. (FL), Signet Jewelers Limited (SIG), and Guess?, Inc. (GES) have been witnessing solid momentum but look significantly undervalued at their current price levels. We believe these stocks are positioned to maintain their momentum in the near term.
Foot Locker, Inc. (FL)
New York City-based FL is an athletic footwear and apparel retailer with approximately 3,000 retail stores in 27 countries. Famous for its global sneaker community, the company offers team-licensed merchandise under Foot Locker, Champs Sports, Lady Foot Locker, Kids Foot Locker, Runners Point, among other brand names. It also operates through various e-commerce websites and mobile apps.
In May, FL launched its exclusive basketball-inspired capsule collection in Canada, designed by Melody Ehsani, the company’s new creative director of its women’s business, in Canada. This exclusive launch should help the company to engage with customers passionate about fashion and basketball culture and help it stand out in the market.
In April, the company selected FreedomPay, a Next Level Commerce platform, to offer an advanced, safe and secure, seamless in-store payments experience for shoppers in the United States. This tailored payment experience should help FL provide greater customer flexibility in today’s new digital world.
FL’s total sales increased 83.1% year-over-year to $2.15 billion in the first quarter, ended May 1, 2021, while its comparable-store sales increased by 80.3% year-over-year. It reported $205 million in non-GAAP net income, compared to a $70 million net loss in the prior-year period. The company’s EPS came in at $1.93 for this quarter, compared to a $1.06 loss per share in the first quarter of 2020. FL’s income from operations amounted to $282 million, compared to a $105 million loss from operations in the prior-year quarter.
In terms of non-GAAP forward P/E, FL is currently trading at 10.03x, which is 38.1% lower than the 16.19x industry average. In addition, the stock’s 0.69x forward Price/Sales is 45.8% lower than the 1.27x industry average.
The $5.67 consensus EPS estimate for fiscal year 2021 represents a 101.8% improvement year-over-year. Meanwhile, the $8.57 billion consensus revenue estimate for the current year indicates a 13.5% increase year-over-year. The stock has gained 41.1% year-to-date to close its last trading session at $57.06. Over the past year, the stock has gained 86.4%.
FL’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall A rating, which equates to Strong Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.
The stock also has an A grade for Momentum, Growth, and Value. We have also graded FL for Quality, Stability, and Sentiment. Click here to access all of FL’s ratings.
FL is ranked #1 of 35 stocks in the A-rated Athletics & Recreation industry.
Note that FL is one of the few stocks handpicked by our Chief Value Strategist, David Cohne, currently in the POWR Value portfolio. Learn more here.
Signet Jewelers Limited (SIG)
Incorporated in 1950, SIG is involved in selling diamond jewelry, watches, and other products. The Hamilton, Bermuda-based company operates through North America; International; and Other business segments under the Kay Jewelers, Kay Jewelers Outlet, Jared the Galleria of Jewelry, and Jared Vault brand names. SIG operated 2,833 stores and kiosks as of January 30, 2021.
Last month, the company launched a comprehensive set of Corporate Sustainability Goals, highlighting its target to achieve net-zero greenhouse gas emissions by 2050. The goal also demonstrates SIG’s commitment to continuous improvement in the integrity of the global jewelry supply chain.
In May, SIG signed a multi-year renewal agreement with Alliance Data Systems Corporation’s Card Services business. Under the agreement, Alliance Data will offer private label credit card programs across SIG’s jewelry banners and advanced customer insights to help drive top-line sales. This should enable the company to cater to the unique needs of its customers and improve their experience with SIG
In the first quarter, ended May 1, 2021, SIG’s total sales increased 98.2% year-over-year to $1.69 billion. The company’s e-commerce sales rose 110.3% year-over-year to $346.3 million, while its brick and mortar same-store sales increased 105.7% from their year-ago value. Its gross margin grew 232.2% from its year-ago value to $678.4 million. SIG’s net income came in at $129.8 million, versus a $205.3 million net loss in the first quarter of 2020. Its EPS was $2.23 for this quarter, compared to a $3.96 loss per share in the prior-year period.
In terms of non-GAAP forward P/E, SIG is currently trading at 9.07x, which is 44% lower than the 16.19x industry average. In terms of forward Price/Sales, the stock is currently trading at 0.51x, which is 60.1% lower than the 1.27x industry average.
Analysts expect SIG’s revenue for the current year to be $6.68 billion, representing a 27.8% year-over-year growth. The company’s EPS is likely to increase 236% for the current year. The stock closed yesterday’s trading session at $64.34.
SIG’s POWR Ratings reflect this promising outlook. The stock has an overall A rating which equates to Strong Buy in our POWR Ratings system.
The stock has an A grade for Momentum, Growth, and Value. In addition to the POWR Ratings grades we’ve just highlighted, one can see SIG’s ratings for Stability, Quality, and Sentiment here.
Of the 66 stocks in the A-rated Fashion & Luxury industry, SIG is ranked #8.
Guess?, Inc. (GES)
Leading clothing brand and retailer GES operates through five segments: Americas Retail; Americas Wholesale; Europe; Asia; and Licensing. It sells its products under GUESS, GUESS U.S.A., GUESS Jeans, GUESS? and Triangle Design, GUESS by MARCIANO, and other brand names. Guess is based in Los Angeles.
This month, GES released “VISION GUESS,” the company’s fourth sustainability report that covers its fiscal years 2020 and 2021, highlighting its new “GUESS Sustainability Assurance Framework.” The report also highlights its significant achievement in increasing its eco SMART GUESS denim product offerings by 18%.
GES’ total revenue increased 99.8% year-over-year to $520 million in its fiscal first quarter, ended May 1, 2021. Its operating margin for the Americas Retail segment rose 62.2% year-over-year to 13%, while its gross profit increased 518.1% from the prior-year quarter to $211.56 million. The company’s retail comp sales, including e-commerce, increased 44% year-over-year.
In terms of forward Price/Sales, GES is currently trading at 0.56x, which is 55.6% lower than the 1.27x industry average . The stock’s 9.71x forward Price/Earnings is also 40% lower than the 16.19x industry average.
Analysts expect GES’ EPS to increase 3,385.7% in its fiscal year 2022 and 13% in 2023. The $2.57 billion consensus revenue estimate for the current year represents a 36.9% improvement from the same period last year.
GES’ stock has gained 112.6% over the past year to close yesterday’s trading session at $22.32. The stock has returned 89.5% in the past nine months.
It’s no surprise that GES has an overall B rating, which equates to Buy in our POWR Ratings system. The stock has an A grade for Value, and a B grade for Growth and Momentum. Click here to see the additional POWR Ratings for GES’ Stability, Sentiment, and Quality.
GES is ranked #25 of 66 stocks in the Fashion & Luxury industry.
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FL shares were trading at $56.17 per share on Monday morning, down $0.89 (-1.56%). Year-to-date, FL has gained 40.29%, versus a 18.51% rise in the benchmark S&P 500 index during the same period.
About the Author: Imon Ghosh
Imon is an investment analyst and journalist with an enthusiasm for financial research and writing. She began her career at Kantar IMRB, a leading market research and consumer consulting organization. More...
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