Halloween is anything but kid stuff for Party City Holdco Inc (NYSE:PRTY) investors. As CEO James Harrison said last year, it’s the all-important season when hundreds of pop-up costume stores swell the company’s year-round retail footprint by roughly 50% for a few hectic months. The scarier the cycle, the sweeter the rewards for PRTY stock owners.
The macro is on the sweet side. Households are in a fairly “spendy” mood — overall retail sales may have hit a near-term wall, but Americans are willing to make exceptions for the big holidays.
Surveys indicate that Halloween budgets are 8% to 8.5% richer than last year, injecting about $700 million extra into the industry. If Party City can capture its fair share of that added cash flow, the currently depressed chart should flash on Wall Street’s screens as a compelling value.
A year ago, PRTY stock went into Halloween at 13.5X anticipated forward earnings. Returning to that multiple on updated targets implies fair value well above $18.
Even stripping out the Halloween quarter, which also includes Thanksgiving decorations, the December holidays and what managements calls the “two-day Halloween” of New Years, the fundamental view on Party City stock makes it a solid buy with plenty of room for upside.
However, the bulls aren’t buying right now, which is likely due to a sense that Amazon.com, Inc.(NASDAQ:AMZN) sells Halloween costumes and it is a universal category killer. I think that’s overstated. For one, only 22% of the public buys Halloween supplies online, no matter how much time they spend looking at websites. That segment hasn’t grown since last year, so it’s not like Jeff Bezos is suddenly flashing the costume light and we’re all following like zombies (pun intended!).
Besides, PRTY has its own website where Halloween sales climbed 6% last year — aggressive discounting offered there now should keep the company relevant with value-driven shoppers online.
PRTY Stock Is a Sweet Buy
But come October, Party City stock is all about the dedicated brick-and-mortar, where the high-ticket costumes and cart-stuffing impulse items add up to a make-or-break quarter. While there’s competition with upstart chains like Spirit Halloween opening stores earlier and earlier in the season, I think a lot of that is noise. People just aren’t thinking of spooky décor in August.
In any event, we’re not looking for PRTY stock to have a brick-and-mortar monopoly to protect — at best, two out of three Halloween stores still belong to someone else.
What interests me now is how many people go into those specialty stores. Again, this was never an exclusive market, with Party City defending its turf against Wal-Mart Stores Inc (NYSE:WMT), dollar stores and just about everyone else with a spare aisle for extra candy.
But 38% of the people who shop for Halloween go to a specialty store, which gives PRTY about 15% of the overall holiday. Given these factors, this is a stock I recommend jumping on now if you’re looking for a sweet return later.
Hilary Kramer is the editor of GameChangers, Breakout Stocks, High Octane Trader, Absolute Capital Return and Value Authority. She is an accomplished investment specialist and market strategist with more than 25 years of experience in portfolio management, equity research, trading, and risk management. She has extensive expertise in global financial management, asset allocation, investment banking and private equity ventures, and is regularly sought after to provide her analysis on Bloomberg, CNBC, Fox Business Network and other media.