Ah, the holiday season.
Malls filled with people scrambling to find the right Christmas gift…
Pushy customers using their best wrestling moves to snag great deals…
It’s in the air.
Now is the time we break out our credit cards and spend, spend, spend.
Coming out of a lackluster sales year in 2020 due to COVID-19, retailers are putting a lot of effort into this holiday season to recoup lockdown-induced losses.
Forecasts suggest this could be one of the best holiday shopping seasons for retailers ever.
And I think that momentum will carry retail stocks higher into 2022 — and beyond.
Using Adam O’Dell’s six-factor Green Zone Ratings system, I found a strong performing company in the retail sector. It rates in the green across four of the six factors we use to analyze stocks.
The company raised its total revenue by 47% from 2020 to 2021 … and I think 2022 will be an even bigger year.
We are “Strong Bullish” on this stock, which means it is poised to outperform the broader market by at least three times over the next 12 months.
Let’s see why investors should buy this retail stock now.
Retail Sales in the U.S. to Reach New Highs
In November, the rate of inflation (the decrease in the purchasing power of money) in the United States reached 6.8% — the highest it’s been since June 1982.
Conventional wisdom suggests that higher inflation would curb sales of anything from cars to regular household items.
However, data suggests that isn’t the case.
Americans spent $4.9 trillion in both 2019 and 2020. The pandemic didn’t curb retail spending at all.
eMarketer and the U.S. Department of Commerce project retail sales in the U.S. to reach $5.2 trillion this year and $5.4 trillion by 2025 — a 10% jump from COVID-19 spending.
Investors can find big profits in this trend.
A Retail Stock Giant: Dillard’s Inc.
Dillard’s Inc. (NYSE: DDS) is a Little Rock, Arkansas-based company that operates department stores in the Southeast, Southwest and Midwest. It sells a wide array of merchandise:
- Fashion apparel for men, women and children.
- Home furnishings.
- Other consumer goods.
DDS operates 282 stores across the U.S., including 32 clearance centers and an internet store at Dillards.com.
Dillard’s department stores sell products from some of the most popular companies in the world:
- North Face.
- Tommy Bahama (remember, I recommended Oxford Industries back in November).
- Anne Klein.
- Ralph Lauren.
From 2017 to 2019, Dillard’s had very steady annual revenue. Its top line was between $6.3 billion and $6.5 billion.
However, the COVID-19 pandemic and the shutdowns that came with it hit it hard. In 2020, Dillard’s revenue dropped 31% to only $4.4 billion.
But forecasts look bright, with 2021 revenue expected to reach a new high of $6.51 billion and 2022 being close behind at $6.3 billion.
So, Dillard’s is coming out of the pandemic stronger.
Dillard’s Stock Growth Beating Industry Average
Dillard’s suffered through the COVID-19 pandemic. In January 2020, before the height of the pandemic, the stock was trading at $64.95. It hit a low of $22 by the end of March — a 66% drop in share price.
After hovering in the $22 to $25 mark through July 2020, the stock started its upward climb.
From the end of 2020 to today, Dillard’s stock price has risen a remarkable 457%. Investors pared some gains during the Black Friday sell-off in November, but DDS is turning in higher lows — pointing to Adam’s “maximum momentum” he looks for in a stock.
Dillard’s Inc.’s Stock Rating
Using Adam’s six-factor Green Zone Ratings system, Dillard’s Inc. scores a 92 overall. That means we are “Strong Bullish” on the retail stock and expect it to outperform the broader market by three times in the next 12 months.
DDS rates in the green in four of the six factors we use to rate stocks:
- Quality — Dillard’s has strong returns on assets, equity and investments. Its ROI sits at 30.5% compared to the industry average of just 13.1% — that’s more than twice as high as the broader general merchandise industry. DDS earns a 99 on quality.
- Momentum — From May 2021 to November, Dillard’s stock price jumped from $93 to a high of $394 per share prior to the Black Friday market sell-off — indicating it is in line with what Adam calls “maximum momentum.” The company scores a 95 on momentum.
- Value — Dillard’s price-to ratios (earnings, sales, cash flow and book) are at or below industry averages — including a price-to-earnings ratio of 9.26 compared to the industry average of 28.01. DDS scores a 91 on value.
- Volatility — From January 2021 to the recent sell-off, DDS was roaring … meeting little price resistance along the way to a new 52-week high. The company scores a 74 on volatility.
DDS does score a 44 on growth with a trailing 12-month sales growth rate of 27.4%, but its prior-year-quarter EPS growth rate is a massive 585.9%.
The company also scores a 36 on size with a $5.2 billion market cap.
Bottom line: Yes, the holiday shopping season is normally the best time for retail companies.
But smart investors look for retail outlets that can grow beyond just a month of strong sales.
Dillard’s has shown its ability to rebound sharply after the pandemic, and forecasts suggest it will maintain sales levels at or above pre-pandemic levels.
That’s why Dillard’s Inc. is a retail stock worth considering for your portfolio.
Matt Clark, CMSA®
Research Analyst, Money & Markets
Matt Clark is the research analyst for Money & Markets. He is a certified Capital Markets & Securities Analyst with the Corporate Finance Institute and a contributor to Seeking Alpha. Prior to joining Money & Markets, he was a journalist and editor for 25 years, covering college sports, business and politics.