It’s been quite a chaotic hailstorm for certain discretionary retail firms — think FIVE and LULU — after they rolled through their latest round of quarter earnings results. Indeed, the latest earnings season has been hurricane season for such names. For others, like WMT, the good times keep coming despite the heavy gut punch of inflation, which is acting as less of a headwind than for many other retailers out there.
Despite the performance gap across the trio of retailers we’ll cover in this piece, they all have one thing in common: they’re all Strong Buys, according to the analyst community. Therefore, let’s check in with TipRanks’ Comparison Tool below to find out which is the best of the batch.
Walmart (NYSE:WMT)
Just 2% away from all-time highs, grocery-heavy retail behemoth Walmart seems to be ready to continue its steady ascent again after taking a multi-month breather. Undoubtedly, Walmart isn’t just a firm that’s fortunate enough to have a solid grocery business that offers Great Value (dual meaning here) to customers seeking shelter from the inflationary hurricane.
The company is incredibly well-managed and is more tech-savvy than many give it credit for. Walmart’s Q1 earnings are on tap for May 16, and WMT stock may just have what it takes to soar as it moves past a quarterly checkpoint that’s acted as a difficult-to-pass hurdle for other retailers. Perhaps Walmart can stand tall where many others have fallen short. In any case, I remain bullish on WMT stock for the long run.
Though only time will tell how Walmart fares going into the big number, I think we’ll see more signs that consumers remain hungry for a bargain. Inflation isn’t over yet. And even when it is, there’s no reversing the past few years’ worth of price increases unless, of course, we have deflation on everyday goods, something Walmart CEO predicted would come last year.
Deflation, inflation, or zero inflation, Walmart seems positioned to thrive as it continues winning the love of budget-hit consumers. Additionally, I’m curious as to where the company’s data prowess will take it over the coming years. With advertisers getting the green light to incorporate Walmart shopping data for better ad targeting on Disney (NYSE:DIS) streaming platforms, Walmart seems to have a front-row seat to the future of data analytics.
At 31.6 times trailing price-to-earnings, WMT stock is expensive for a grocery retailer, but as a hidden tech-savvy data play, perhaps it’s not.
What Is the Price Target of WMT Stock?
WMT stock is a Strong Buy, according to analysts, with 25 Buys and three Holds assigned in the past three months. The average WMT stock price target of $66.08 implies 9.3% upside potential.
Five Below (NASDAQ:FIVE)
Shares of Five Below, a discount retailer popular with youth, now find themselves more than 36% below all-time highs hit back in the middle of 2021. As one of the bigger laggards so far in 2024, with shares down 33% year-to-date, questions linger as to whether the value proposition is good enough to get consumers to buy in spite of considerable headwinds facing discretionary retail. After all, not everything at Five Below is $5 or under anymore.
Indeed, we have inflation to thank for that. Despite basket sales trending lower in recent quarters (the past eight quarters, as pointed out by Matt Boss of JPMorgan (NYSE:JPM), who recently downgraded the stock to Hold from Buy), I view FIVE stock as a compelling bargain. Aiding the bull case is its long-term expansion potential and the temporary nature of lingering discretionary retail headwinds. As such, I have to stay bullish on FIVE stock, even if it takes a few more quarters of lighter baskets for the tides to turn.
It’s not just lighter baskets that’s worked against Five Below, but perhaps items that skip the basket entirely. Undoubtedly, shoplifting has continued to plague a wide range of brick-and-mortar retailers. Earlier this year, Five Below noted that it’s pulling away from self-checkout to curb theft (or shrink, as the industry calls it).
Indeed, the shoplifting of such low-price merchandise may not be taken as seriously by police, making it critical for the discount retailer to do its best to shrink, well, shrink, even if at the cost of increased friction at checkout.
As Five Below combats shrink while seeking to enhance its value proposition in the face of what remains of inflation, I do see a path higher. Investors will need to be patient for now, but with shares trading at 23.3 times forward P/E, the lowest it’s been in the past year, there’s a lot of incentive to hold.
What Is the Price Target for FIVE Stock?
FIVE stock is a Strong Buy, according to analysts, with 11 Buys and three Holds assigned in the past three months. The average FIVE stock price target of $206.43 implies 48.3% upside potential.
Lululemon (NASDAQ:LULU)
Shares of yoga wear top dog (or should I say downward dog) Lululemon have continued to sink following the company’s terrible quarterly showing that sent LULU down double-digit percentage points. Just like that, LULU stock wiped out most of its 2023 gains and is now back at late-2020 levels, way back when we were in lockdown.
Fans of the brand may find Lululemon to be a bargain here, but after fashion shifts (tights are out, baggy is in), I find it hard to stay bullish on the stock any longer. Due to shifts in fashion trends, which may not reverse anytime soon, I’m inclined to turn bearish on the stock.
Lululemon had a good run, and though its Team Canada Olympic kits (yes, Lululemon is a Canadian company) are to be viewed by all on the big stage, I’m unsure if showcasing such fashion will be enough to reverse recent trends. It’s not that Lululemon is too expensive (though that’s one reason to sell the stock in a stagnant economy), but fashion trends are just bound to change. Indeed, Lululemon will probably still be a top apparel play for the yoga studio or even the gym.
Beyond that, though, I don’t think we’ll be seeing Lulu leggings all too often at the supermarket, shopping mall, or music festivals anymore. Fashion is hard to predict. And for that reason, I’m holding off on buying LULU stock on the latest dip. At 28.9 times trailing P/E (the lowest it’s traded in the past year), many, including most in the analyst community, view Lululemon as a great buy on the dip.
Still, I acknowledge that I could be wrong, and analysts could be right to recommend shares on weakness. There’s a chance Lululemon will be able to overcome temporary fashion shifts and pressures from new rivals. However, I’d much rather wait and see how things play out.
What Is the Price Target for LULU Stock?
LULU stock is a Strong Buy, according to analysts, with 17 Buys, three Holds, and two Sells assigned in the past three months. The average LULU stock price target of $487.81 implies 38.2% upside potential.
The Bottom Line
Retail stocks are not created equally. Some will thrive in the face of headwinds, others will fold, and some will fluctuate wildly. In any case, I view the scene as worth watching or even buying if you seek value in an otherwise “toppy” market. Of the trio, analysts see the most upside to be had (48%) in FIVE stock.