The coronavirus-driven market selloff has caused stocks to plummet exponentially. And apart from its repercussions on a grander scale, it’s also causing individual investors to reconsider their options on a personal level. The retail stocks, however, are less vulnerable than others.
On the one hand, shares of companies in the travel, hospitality and entertainment businesses were decimated, and many retail stocks also felt the brunt of this black swan event.
On the other hand, those retailers focusing on household staples such as food, pharmacy and cleaning products have shed less value in comparison to the companies dealing with discretionary merchandise.
For example, apparel and footwear giant, Nike (NYSE:NKE) is down 17% year-to-date. Conversely, shares of grocery and general merchandise retailers such as Walmart (NYSE:WMT) and Costco (NASDAQ:COST) have seen their declines reversed YTD.
With this in mind, it is a perfect opportunity to look at the price-earnings ratios of the top-performing retail stocks:
Retail Stocks to Buy: Amazon (AMZN)
P/E Ratio (TTM): 87.42
Amazon (NASDAQ:AMZN) is one of the wealthiest corporations in the world, with a trillion-dollar market cap. Its growth story has amazed market gurus around the world as it continues to soar to new heights with each passing day.
The excerpt from the company’s 1997 shareholder letter, still holds true after all these years:
“We believe that a fundamental measure of our success will be the shareholder value we create over the long term. This value will be a direct result of our ability to extend and solidify our current market leadership position.”
The fourth-quarter earnings report for the company topped Wall Street’s estimates after a strong holiday sales season. Sales increased by 21% in the year, which boosted net margins by 17%. The company offers a positive outlook for the current quarter as well, estimating growth at 16% to 22% last year. The coronavirus fears are real for the company, but its impact is long-term in nature. However, the profit guidance for the first quarter is between $3 billion and $4.2 billion, which is in line with Q1 2019.
Neel Shah, a senior trader at Peak6 Capital Management, feels that there is still room for potential upside for the company. “We got here by buybacks, and we got here by [price-to-earnings multiple] expansion and people buying stocks. So, I think that’s going to take us higher. PE expansion could continue” stated Shah.
The stock price for the company is currently seven times the S&P 500 market index. The stock recently increased over $2000 after the recent quarterly report. Interestingly, the stock is moving in the opposite direction to the market, which continues to struggle with the coronavirus. Overall the progress is impressive, which is why the P/E Ratio for the company is almost six times the industry average.
Alibaba (BABA)
P/E Ratio: 21.32
Alibaba (NYSE:BABA) is often referred to as the “Amazon of China,” and its rapid expansion mirrors that of Jeff Bezos’ megacorporation. Both companies started as online retailers but have now expanded into several other business lines. Alibaba currently boasts a market cap in excess of $500 billion and is among the top retail stocks in the world
The financial performance of the company has been rock solid in the previous year with top-line revenue growth and adjusted EBITDA increasing by 38% and 37% year-over-year. The robust growth in the year is primarily due to the record success of the company’s 11.11 Global Shopping Festival in its Tmall segment and the expansion of its annual active consumers in Taobao, its largest online retail website.
The coronavirus has hampered growth in the first quarter of 2020, but it has done little to deter the analysts at Nasdaq who have maintained their high estimates for the third and fourth quarter. China is starting to get the virus under control, and it won’t be long when its business as usual for Alibaba.
The coronavirus-led slowdown has been less intense with Alibaba compared to the market, and the stock price will likely snap back in the coming months.
Home Depot (HD)
P/E Ratio: 19.66
In a retail industry that is seemingly dominated by online platforms, Home Depot (NYSE:HD) is an anomaly. Home Depot’s traditional brick-and-mortar retail business continues to thrive and is rewarding its long-term investors handsomely.
The company’s unique target market comprising DIY-ers and construction professionals continues to dumbfound critics that feel e-commerce companies should have gobbled up every bit of the bricks and mortar industry by now.
Revenues for the past year have risen by 7.2%, as has the operating income by 7.5%. Perhaps the stand-out figure for the company its net income figure which rose by roughly 29% year-over-year due to its tight control over expenses.
The coronavirus is likely to dent the first-quarter earnings of the company, considering it sources 30% of its products from China. On top of that, the virus is expected to force consumers to delay their home improvement purchases. As of now, it seems that the company will pick up from where it left off in the latter half of the year.
The stock price for Home Depot has had its fair share of ebbs and flows throughout the year. The stock performance has been impressive after the holiday season, up until the virus engulfed the country. As with the other companies, the fall has been less dramatic than the market index.
As of this writing, Muslim Farooque did not hold a position in any of the aforementioned securities.
