HOME: 3 Must-Own Small-Cap Retail Stocks to Buy in April

The retail sector is making a solid comeback this year after being soundly eclipsed by the e-commerce industry for the better part of 2020. With increasing consumer spending and a rise in outdoor activities, total retail sales from December 2020 to February 2021 rose 6% versus the same period last year, according to the U.S. Census Bureau.

While monthly retail sales growth declined slightly in February, the recent passage of the $1.9 trillion American Rescue Plan should boost retail sales significantly in the near term. In addition, a $2 trillion infrastructure spending proposal, which has not yet been fully detailed by the White House, if passed should contribute to retail sales improvement indirectly through rising employment.

Nevertheless, many retail stores have been strengthening their online presence to stay ahead of their peers by collaborating with various companies. According to Digital Commerce 360 estimates, consumers spent $861.12 billion online with U.S. merchants in 2020, up 44% year-over-year, and total retail sales increased 6.9% year-over-year to $4.04 trillion.

Small-cap retail companies have also been leveraging government tax deferrals to boost their businesses over the past year, under the CARES Act. This is evidenced by Vanguard Small Cap ETF’s (VB) 9.2% gains year-to-date versus S&P 500’s 5.4% returns over this period.

With all this as a backdrop, we think it is wise to invest now in budding small-cap retail stocks At Home Group, Inc, (HOME), The Container Store Group, Inc. (TCS), and Tile Shop Holdings, Inc. (TTSH) given their solid growth potential.

Click here to checkout our Retail Industry Report for 2021

At Home Group Inc. (HOME)

With a market-cap of $1.78 billion, HOME operates a chain of home-decorating accessories stores in the United States. It offers home furnishings and accent decors, such as artificial flowers and trees, pottery, crafts, housewares, party supplies, home textiles, and seasonal decorations. The company is focused on providing a range of budget friendly products for rooms of any size.

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HOME opened three new home décor stores in March 2021, in Leesburg, Oklahoma City and Charlotte. The company also announced in March that it will award gift cards to the first 50 visitors in its new stores who register for its Insider Perks program. The company also opened four stores in February in Nanuet, Johnstown, Ocean Township and San Jose.

Collaborating with iconic London designer Tracey Boyd, HOME launched an exclusive collection on February 22 that features more than 500 items, including patio furniture and lighting, pillows, trays, decorative boxes and vases.

For its fiscal year 2021 fourth quarter, ended January 30, HOME’s net sales increased 41.3% year-over-year to $561.99 million. Its gross profit has increased 91.5% year-over-year to $218.43 million. The company’s operating income for the quarter was $100.28 million, up 40.6% sequentially. HOME’s net income was $72.71 million, which represented an improvement of 54.5% sequentially. Also, its EPS increased 52.1% sequentially to $1.08.

Analysts expect HOME’s EPS to improve 188.5% year-over-year for the current quarter, ending April 30, to $0.54. It has surpassed the Street’s EPS estimates in three of the trailing four quarters. Also, its consensus revenue estimate of $449.64 million for the current quarter represents a 131.6% rise on a year-over-year basis.

The stock has gained 78.2% over the past three months, benefitting from its new store openings. It closed yesterday’s trading session at $27.28.

HOME’s strong fundamentals are reflected in its POWR Ratings. The stock has a B overall rating, which equates to Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

The stock has an A grade for Momentum, and a B grade for Growth. We have also graded HOME for Value, Quality, Stability, and Sentiment. Click here to access all of HOME’s ratings.

HOME is ranked #11 of 36 stocks in the B-rated Specialty Retailers industry.

The Container Store Group, Inc. (TCS)

Founded in 1978, TCS is a specialty retailer of storage and organization products. The company’s segments include: The Container Store, Elfa, and Corporate/Other. Its stores are organized into various lifestyle departments, which include storage, shelving, kitchen, travel and laundry, among others. It offers its products directly to customers through its website, responsive mobile site, and call center, and sells to various retailers and distributors. TCS has a market capitalization value of $816.91 million.

TCS opened a new store this month near the Short Pump Town Center in Richmond. As per a report published on March 5, the company is also set to open a new store on May 22in Westfield Annapolis. TCS appointed Satish Malhotra as the new CEO and company President. He has been leading the company in his new role since February 1. He succeeded Melissa Reiff, who has retained her position as TCS’ Chairwoman of the Board of Directors.

The company’s net sales were $275.48 million for the fiscal 2020 third quarter, ended December 26, 2020, which represents an improvement of 20.5% year-over-year. TCS’ gross profit increased 18.7% year-over-year to $159.49 million. While its income from operations came in at $32.84 million for the quarter, up 248.2% year-over-year, its net income was $19.67 million, up 715.5% year-over-year . Also, its adjusted EPS increased 740% year-over-year to $0.42.

A consensus EPS estimate of $0.57 for the current quarter, ending March 31, represents a 119.2% increase year-over-year. TCS’ consensus revenue estimate of $222.60 million for the next quarter, ending June 30, represents a 45.8% rise from the prior year period.

The stock gained 574.2% over the past year to close yesterday’s trading session at $16.18. It has also gained 66.1% over the past three months.

The POWR Ratings are also high on TCS; it has an Overall Rating of A, which translates to a Strong Buy. The stock also has an A grade for Growth and Momentum and a B grade for Value and Quality. Click here to see the additional POWR Ratings for TCS (Sentiment and Stability).

TCS is ranked #3 in the same industry.

Tile Shop Holdings, Inc. (TTSH)

With a market cap of $323.45 million, TTSH is a specialty retailer of manufactured and natural stone tiles, setting and maintenance materials, and related accessories in the U.S. The company offers marble, travertine, granite, quartz, sandstone, porcelain, glass, cement, wood look, and metal tiles among others, primarily under the Rush River and Fired Earth brands. TTSH sells its products through its website and offers delivery service through third-party freight providers.

TTSH opened a new showroom in Wayne on February 19. It marked the company’s sixth store in the New Jersey market.

TTSH’s net sales have increased 3.8% year-over-year to $81.56 million for the fourth quarter ended December 31. The company’s gross profit came in at $55.85 million, which represents an improvement of 3.9% year-over-year. Its income from operations was $2.68 million versus a $4.41 million loss from operations in the fourth quarter of 2019. Furthermore, TTSH’s net income was $1.38 million compared to a net loss of $4.25 million in the prior-year period. Also, its EPS was t $0.03 compared to a loss per share of $0.09 in the year-ago period.

Analysts expect TTSH’s EPS to increase at a rate of 20% per annum over the next five years. The stock has gained 682.5% over the past year and 45.6% year-to-date. It closed yesterday’s trading session at $6.26.

TTSH’s POWR Ratings reflect this promising outlook. The stock has an A overall rating, which equates to Strong Buy in our POWR Ratings system.

The stock also has an A grade for Momentum and Quality along with a B grade for Value and Growth. In addition to the POWR Ratings grades we’ve just highlighted, one can see TTSH’s ratings for Sentiment and Stability here.

TTSH is ranked #2 in the same industry.

Click here to checkout our Retail Industry Report for 2021

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HOME shares were trading at $28.70 per share on Wednesday afternoon, up $1.42 (+5.21%). Year-to-date, HOME has gained 85.64%, versus a 6.35% rise in the benchmark S&P 500 index during the same period.

About the Author: Sweta Vijayan

Sweta is an investment analyst and journalist with a special interest in finding market inefficiencies. She’s passionate about educating investors, so that they may find success in the stock market. More...