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Zulily (ZU) Stock: Why It’s a Screaming Buy Right Now

Okay, let’s just get it all out there: Zulily Inc (NASDAQ:ZU) stock has been an absolute nightmare lately. Shares of the online retailer trade around $14 per share, off about 80% since their peak near $70 a pop in February 2014.

And 2015 hasn’t been kind to ZU stock, either.

Zulily is off 40% for the year-to-date, with investors selling the stock off en masse after the e-tailer reported slower-than-expected fourth-quarter growth and gave soft guidance for the fiscal first quarter as well.

With ZU stock severely underperforming just as industry leader Amazon.com, Inc. (NASDAQ:AMZN) is hitting its stride (AMZN stock is up 22 % already this year), it seems a little silly to be bullish on Zulily. In reality, it could be the most compelling contrarian play in the stock market today.

I Love When Selloffs Breed Opportunity

Again, there’s no point in sugarcoating Zulily’s situation. The company — whose website caters to women and moms in particular — has unintentionally constrained its own growth prospects via its wildly unintelligent business model.

Granted, the flash-sales site used its business model to grow revenue from $18 million in 2010 to $1.2 billion last year, so it has obviously been doing something right. But for ZU to keep up its meteoric growth rate, its standard operating procedures will need to change. Big time.

Traditionally, Zulily will receive an order through its website, then place an order with the third-party vendor, who would then ship the items on a just-in-time basis to Zulily. Zulily, in turn, would ship the item to the customer.

This process made for frustratingly long shipping times and a high churn rate due to fed-up customers. A big reason for the meltdown in the ZU stock price comes from this fundamentally inconvenient user experience.

Just take a look at Zulily’s average shipping time when compared to other competitors, courtesy of the Wall Street Journal:

zulily-stockThe above graphic is ugly. Thankfully for ZU stock, it should get a makeover in the coming months. Taking a page from AMZN, Zulily will begin holding third-party inventory in its own warehouses, eliminating the time it took for vendors to ship product to ZU in its old model.

As an investor, that’s music to my ears. I think of it like a lever that Zulily can pull, instantly improving its operations and thus retaining (and hopefully gaining) more customers.

It’s also expanding its online presence, and ZU is one of just two retailers to partner with Facebook Inc (NASDAQ:FB) in efforts to increase personalized services available on the Facebook Messenger app.

Wall Street is starting to take notice of these developments: on April 1, Oppenheimer initiated ZU stock with an “outperform” rating, giving shares a $17 price target, which implied a 30% upside at the time. It wasn’t an April Fools’ joke. Stifel is also encouraged about the Zulily stock price, with its $24 price target calling for a jaw-dropping 70% rally.

Legendary investor Bill Miller — who beat the S&P 500 for a mind-boggling 15 straight years between 1991 and 2005 — is also building a position in ZU stock. At the end of the fourth quarter, his mutual fund, Legg Mason Opportunity Trust Class C (MUTF:LMOPX), owned nearly $20 million worth of Zulily stock.

I’m not generally a fan of trying to catch falling knives like ZU, but I believe the stock has everything in place for a sharp rebound from recent lows. It’s not catching a falling knife so much as catching a ride on a rocket ship.

As of this writing John Divine held no positions in any of the stocks mentioned. You can follow him on Twitter at @divinebizkid or email him at editor@investorplace.com.

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Article printed from InvestorPlace Media, https://investorplace.com/2015/04/zulily-zu-stock-why-its-a-screaming-buy-right-now/.

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