While tech-related stocks have helped the S&P 500 index to new highs this year, investors have a chance to scoop up attractive deals in the retail sector. Several top retail stocks are trading well off their highs, and Wall Street analysts are starting to see buying opportunities.
Let’s look at two beaten-down consumer brands that could be undervalued and due for a major comeback, according to these analysts.
1. Chewy
Chewy (NYSE: CHWY) is building a leading online pet care brand in an industry that is estimated at $147 billion, according to Statista. While the company is wrestling with weak consumer spending trends this year, the stock has rocketed 32% over the last three months and could be headed higher, according to Goldman Sachs analyst Eric Sheridan.
Sheridan recently maintained a buy rating on the shares. At the firm’s recent investor conference, Chewy CEO Sumit Singh made positive comments about active customer trends and long-term sales potential. Management believes its recent 3% year-over-year sales increase is below what it can achieve over the long term, which certainly seems doable given the size of the pet care market. Chewy expects to grow its customer base in the low-single-digit range and drive additional sales growth through increases in net sales per customer.
Chewy stock looks undervalued at a low price-to-sales ratio of 1.1 — well below the S&P 500 average P/S ratio of 2.9. The company still has great potential to gain share in the pet care market and expand profit margins from services like pet healthcare and sponsored advertising, which is not reflected by the low P/S multiple.
The stock’s low valuation could support near-term upside if investors decide Chewy is worth a higher P/S multiple, and that seems to be happening, with the stock moving higher over the last few months. There could be much bigger gains over the next few years if sales continue to improve.
2. Starbucks
Starbucks (NASDAQ: SBUX) shares took a hit over slumping sales momentum and increasing competition, but the leading coffee brand is not sitting still. It made a bold move…
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