Back in mid-November, I said it was a good time to go bottom-fishing with beaten-up retailer Macy’s Inc (NYSE:M).

At that time, Macy’s stock, along with the rest of the retail sector, was starting to show some signs of life. Macy’s had just reported middle-of-the-road third-quarter numbers that showed that maybe the worst is over for mall retailers. The stock jumped to $20. Then, consumers opened their wallets at an unprecedented rate during the holiday season, and Macy’s stock jumped higher a few months later on better-than-expected holiday results.

But the bears kept pounding on the table, saying that this rally was a head-fake. Amazon.com, Inc. (NASDAQ:AMZN) was still going to eat Macy’s lunch, and destroy every single mall in the process.

Now, those bears don’t have much ammunition.

Macy’s just reported a strong beat-and-raise quarter which illustrates that recent operational improvements aren’t an anomaly. Instead, things are starting to improve in the brick-and-mortar retail world, and retail stocks, which were priced for death, are now bouncing back.

Is there more room to run for Macy’s stock?

I think so. Recent quarterly numbers point to revenue stabilization and margin improvement, two things which aren’t priced into Macy’s stock at current levels. As such, I think there is more upside left.

Here’s a deeper look:

Macy’s Is Bouncing Back

Everything is getting better at Macy’s.

On the top line, comparable sales rose more than 4% this past quarter. Backing out a one-time shift in sales, which provided a nice lift to the Q1 comparable sales rose 1.7%. That follows a 1.4% rise in the fourth quarter.

Moreover, comparable sales are expected to rise between 1% and 2% this year. If that happens, that would end a three-year streak of negative comparable sales growth.

On the margin side, things are also improving. Excluding impairment costs related to the China wind-down, operating margins were 4.6% this past quarter, up 50 basis points year-over-year. This continues what has been a multi-quarter streak of year-over-year margin improvements.

Broadly speaking then, both sales growth and margins are turning around Macy’s.

Why? The mall is making a comeback. My theory about the death of the brick-and-mortar has always been that it is just wrong. Brick-and-mortar retail isn’t dying. It is just resizing to exist alongside digital commerce. And in that resizing process, lower-performing malls are closing, while the money from those malls is being reallocated towards the higher-performing malls.

The net result is that the higher-performing malls are getting big face-lifts, and are now better than ever.

Macy’s numbers clearly speak to this trend playing out. As such, this bounce back in Macy’s stock isn’t a head-fake. It is the beginning of a big turnaround.

Macy’s Stock Has Runway to the Upper $30s

Comparable sales growth is expected to be positive this year. Given the massive turnaround happening in brick-and-mortar retail, coupled with the fact that Macy’s still grew digital sales at a double-digit rate this past quarter, I think that the company can continue to post comparable sales growth in the low single-digit range over the next several years.

Margins, meanwhile, should continue to improve. With digital accounting for a bigger piece of the pie, it is tough to see operating margins bouncing all the way back to 10%, from 7% last year. But 8-9% operating margins seem achievable in five years.

This combination of low single-digit comparable sales growth — plus a rebound in margins to 8-9% — leads me to believe that Macy’s can net about $4.30 in earnings per share in five years. Over the past five years, Macy’s stock has normally traded at 11-times forward earnings, but that includes recent years where the multiple was depressed due to earnings degradation concerns. Back in 2013-14 when earnings were stable, Macy’s traded around 13-times forward earnings.

Applying that 13-times forward multiple to $4.30 implies a four-year forward price target of nearly $56. Discounted back by 10% per year, that equates to a present value of in the upper $30s.

Bottom Line on Macy’s Stock

This bounce back in Macy’s stock is the start of a major turnaround of all retailers. Consequently, it looks like there is still more room for Macy’s stock to rally until its fairly valued.

As of this writing, Luke Lango was long M and AMZN.