Macy’s, Inc. (M) stock’s loss of 45% made it one of the worst-performing retailers of 2015. In retrospect, M stock was well deserving of those losses last year, with its comparable sales falling 2.5% and the company reportedly losing market share to competing retailers, a rarity for what has been one of the most consistent retailers of the last 20 years.
Nevertheless, Macy’s stock has quickly, and somewhat quietly risen from the ashes to regain much of its past swagger, with gains of 27.5% this year.
The big questions, though, are whether these newfound gains will continue and if Macy’s stock is still on the discount rack?
M Stock Shows Life
M stock got a big pop behind the company’s fourth-quarter report and FY2016 guidance. The stock jumped nearly 6% after Macy’s Q4 report in part because it was oversold after a horrific year, but also because its guidance for revenue loss of 2% in FY2016 was better than many feared, and also better than its 3.7% decline in revenue during 2015.
Furthermore, Macy’s disclosed that demand for its real estate assets is high, which might be the biggest reason why M stock has rallied so much. After all, divesting assets, closing stores and generating income from real estate is a big part of Macy’s long-term vision. Thus, if Macy’s is generating high interest for real estate assets, then all the better for the Macy’s stock price.
Will Macy’s Stock Remain a Good Investment Through 2016?
With that said, towards the end of 2015, M stock bottomed at just 9x trailing-12-months earnings. It has since appreciated rapidly to a P/E multiple of 13.5. However, it does not necessarily matter than Macy’s stock multiple has surged 50% from its low, and that is because it had no business ever trading at a P/E ratio of 9.
Regardless of Macy’s short-term problems, the company remains iconic, and has proven over decades that it can and will stand the test of time. At 13.5 times earnings, M stock is still trading slightly below the retail industry’s multiple, and also trades at a rather large discount to the S&P 500.
When you put it all together, yes, Macy’s stock is up big in 2016, but it still trades at a big discount to the S&P 500, and with growth expected to return in 2017 and real estate sales acting as a catalyst for 2016, M stock sure seems like a good long-term bet.
Furthermore, when you incorporate $2 billion left on its share repurchase plan, good for more than 14% of shares outstanding at its current price, and a dividend yield of 3.2%, then you can also incorporate downside safety to the investment mix.
Collectively, Macy’s stock looks like a good investment from this point forward — a stock that still remains on the discount racks, but likely won’t for too long.
As of this writing, Brian Nichols owned shares of M stock.
