In this article, we will look at the 12 Most Undervalued Retail Stocks To Buy According to Analysts.
Is the US Consumer Strong?
Jerome Powell, Chair of the US Federal Reserve, said that the Fed is in no rush to make further rate cuts given the current state of the US economy. The October retail sales numbers indicate that American consumers are still spending, with retail sales growing 0.4% in October. On November 15, Skyler Weinand, chief investment officer of Regan Capital, appeared on Bloomberg to discuss the retail sales numbers.
He said that the Fed will likely cut rates in the current economy in December, with January bringing a 50/50 scenario. The next 13-14 months might bring two or three Fed cuts, bringing the Fed fund rate down to 4%. In the meantime, Weinand says that the backend of the curve might be selling off, and we might see 5% again on the long end of the curve. He says that this is actually welcoming news, as a steep rate curve is wanted.
With the steepening yield curve also being a forecast of the bond market that inflation will be higher in the future, Weinand says that the US consumer and corporations are extremely strong, with corporate balance sheets seeing the least amount of leverage since 1950. Debt to equity in the United States is standing at 19%, and consumer balance sheets are extremely strong as well. Consumer debt, including mortgage debt, has been around the same for the last five years, yet US net wealth has grown to around $165 trillion.
All of this shows that the consumer is strong and that there is a considerable runway for consumers to potentially spend and re-lever. In addition, the government is going to spend $2 trillion next year in a fiscal deficit. Weinand thus believes that there are so many wheels behind inflation that could potentially trigger a rise of 2.5% to 3% above current levels. For him, the fear of inflation is real.
Consumer Spending Rising Amid Holiday Season
CNBC’s NRF Retail Monitor also showed a solid bounce back in consumer spending after a disappointing September, with declining gas prices bringing a little extra money into the pockets of Americans for discretionary spending. On November 12, CNBC’s Steve Liesman joined ‘Squawk Box’ to talk about the Retail Monitor, saying that retail sales grew by 0.7% month over month after a 0.3% decline in September. In addition, core retail grew by 0.8% month over month and 4.6% year over year in October.
A further sector-wise breakdown of retail sales in October shows a 2.7% month-over-month growth in sporting goods and hobbies, a 1.8% month-over-month increase in nonstore retailers, and a 1.7% month-over-month growth in building and garden supplies. Health and personal care grew by 1.4% month-over-month. However, clothes and accessories underwent a 0.6% month-over-month decline, and so did electronics and appliances, falling by 0.8% month-over-month.
On November 16, Rick Caruso, founder and executive chairman of Caruso, joined CNBC’s ‘Power Lunch’ to discuss his take on holiday retail. He said consumers are in “great shape” going into the holiday season. They might start to shop early, with retailers offering earlier sales. Retail sales suggest that the economy has plenty of momentum going into the holiday season, but the 2024 holiday season is likely to have five fewer days of shopping than the holiday season of 2023.
We recently published an article on the 7 Best Department Store Stocks to Buy According to Hedge Funds. Here is an excerpt from it:
An interesting brand loyalty crisis is also emerging this holiday season. Consumers are looking for better prices and deals instead of going back to the brands they always shop at. They are looking for the best value and are generally inching away from brand loyalty, prioritizing quality and price over brand names and tags. According to McCarthy, consumers seek quality, value, and variety when they go holiday shopping. He says that:
“With the perception of higher prices still top of mind, consumers are really caught between trying to stretch their wallets and being festive and so this really means they’re torn between seeking value and remaining loyal.”
He further says that around two-thirds of consumers are expected to switch brands if they find the price too high, and around 50% are willing to switch retailers to save. In addition, 78% of shoppers plan to participate in promotional events this October and November. Trends also show that privately labeled brand sales are expected to grow faster than national brand sales this year.
He suggests that retailers must ensure that they provide good quality, good value price points, and a variety of selection that attracts consumers. He also offers advice to consumers looking to save some dollars without slashing items from their holiday list, saying that:
“Shoppers are encouraged to explore multiple retailers to look for a competitive deal or a price point that they think is going to work for them.”
With these trends in view, let’s look at the 12 most undervalued retail stocks to buy according to analysts.
12 Most Undervalued Retail Stocks To Buy According to Analysts
Our Methodology
To compile a list of the 12 most undervalued retail stocks to buy according to analysts, we used the Finviz stock screener and online sources to compile a list of the top 15 undervalued retail stocks with forward P/E ratios less than 15 as of November 18, 2024. We then checked their upside potential, according to analysts, and chose the top 12 stocks with the highest potential. The stocks are arranged in ascending order of analysts’ upside potential as of November 18, 2024.
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12 Most Undervalued Retail Stocks To Buy According to Analysts
12. Caleres, Inc. (NYSE:CAL)
Forward P/E: 7.55
Analyst Upside: 21.15%
Caleres, Inc. (NYSE:CAL) is a global footwear retailer that operates shoe stores and e-commerce websites. It sources, designs, develops, manufactures, and distributes footwear for people of all ages, and operates through the Brand Portfolio and Famous Footwear segments.
The company’s products resonate with its target market. However, its fiscal Q2 2024 results fell short in both segments due to technical complications. Although initially successful, the upgrade of its SAP enterprise system to the new cloud-based version delayed several key operational reports due to a lack of visibility of its essential tools.
Caleres, Inc. (NYSE:CAL) took several actions to mitigate the problems and is now fully operational in all areas that caused the disruption. It has also accelerated cost reduction initiatives to mitigate the impact the disruptions had on its profitability. The company announced a restructuring that will save it around $7.5 million on an annualized basis and $2 million in this fiscal year. Such initiatives are expected to help the company bounce back and improve its effectiveness and efficiency.
Despite these headwinds, the company is continuing to see a strong growth in demand for its new products, along with rising momentum in fashion sneakers. Sneakers and sports represented around 28% of retail sales for fiscal Q2 2024, up six points as compared to last year. The company is well-positioned in sneakers for the future, and has aligned its inventory with consumer demand for this trending category. Caleres, Inc. (NYSE:CAL) takes the 12th spot on our list of the 12 most undervalued retail stocks to buy according to analysts.
11. Dollar General Corporation (NYSE:DG)
Forward P/E: 12.99
Analyst Upside: 22.56%
Dollar General (NYSE:DG) is a discount retailer that offers an elaborate array of merchandise, including seasonal items, consumable items, apparel, home products, and more. Its merchandise includes its own private brands, as well as brands from manufacturers. The company’s private brands sell products at a discount to brands, giving the company a competitive market advantage.
The company’s net sales grew by 4.2% year-over-year and amounted to $10.2 billion in fiscal Q2 2024. This growth was attributed to a continual growth in its market share in both units and dollars in highly consumable product sales, despite a weaker sales environment for its core customer.
Dollar General (NYSE:DG) is supporting these growth trends through various initiatives, such as its back-to-basics strategy. Diverting focus on things the company can control, it is increasing profitability by improving in-store execution, a timely and accurate supply chain, and customer-centric merchandising.
It is taking steps to strengthen its position throughout the year, with its top priority being improving the rates of on-time and in-full truck deliveries, known as OTIF. The company’s focused efforts have resulted in significantly higher OTIF levels than last fiscal year. Dollar General (NYSE:DG) has also made progress in optimizing its distribution capacity. It is closing the less efficient temporary facilities, exiting 11 of the 12 temporary facilities it has plans to close. In addition, the company is also building and opening new permanent distribution centers, recently opening two in Arkansas and Colorado.
10. Foot Locker, Inc. (NYSE:FL)
Forward P/E: 15.37
Analyst Upside: 22.88%
Foot Locker (NYSE:FL) is a retailer of shoes and apparel that operates in three segments: North America, Europe, Middle East, and Africa (EMEA), and Asia Pacific. Its portfolio of brands includes Foot Locker, Kids Foot Locker, Champs Sports, atmos, and WSS. The omnichannel retailer operates around 2,523 stores in 26 countries across Europe, North America, New Zealand, Australia, and Asia.
The company’s fiscal Q2 2024 earnings show a positive trajectory, primarily due to its focused initiatives. The quarter saw significant progress in the execution of its Lace Up Plan. Strategic investments in support of the Lace Up Plan are working, as the company is returning to positive total and comparable sales growth along with a return to gross margin expansion.
Comparable sales grew by 2.6%, which was primarily attributed to the company’s global Foot Locker and Kids Foot Locker banners, which comped up 5.2%. This positive trend continued throughout the company’s fiscal Q2 2024. In addition, Foot Locker’s (NYSE:FL) strategies across digital, store experience, loyalty, and brand building are continually taking hold. Its inventories are well-positioned, with products flowing to better align with consumer demand.
Overall, the company’s operations paint a positive picture, which is why analysts and investors are bullish on the stock. It takes the tenth spot on our list of the 12 most undervalued retail stocks to buy according to analysts.
9. Dollar Tree, Inc. (NASDAQ:DLTR)
Forward P/E: 11.85
Analyst Upside: 23.05%
Dollar Tree (NASDAQ:DLTR) operates discount variety stores, with its business segments including Dollar Tree and Family Dollar. The Dollar Tree segment operates 15 distribution centers in the United States and two in Canada and offers a variety of merchandise, consumable merchandise, and seasonal goods. The company holds a competitive market advantage as it provides high-quality, low-cost products that individuals and families need in a comfortable and convenient shopping environment.
While interest rates and other macro pressures affected the buying behavior of the company’s customers, its operational model holds the ability to compete. Dollar Tree’s (NASDAQ:DLTR) differentiated business model and long-term strategy of multi-price expansion and store growth acceleration lend it further competitive advantages in the market.
The company reopened more than 100 former 99 Cents Only locations as Dollar Trees, with plans to open the remaining 56 by the end of the year. These 99 Cents Only locations are high-quality, proven stores in strong markets with great potential. Through these openings, the company is expanding its footprint across California and the Southwest.
Dollar Tree’s (NASDAQ:DLTR) fiscal Q2 2024 earnings show that the company attracted 2.8 million net new shoppers over the past 12 months. It is also undertaking efforts to improve its assortment by emphasizing more relevant items with higher purchase frequency.
8. American Eagle Outfitters, Inc. (NYSE:AEO)
Forward P/E: 10.31
Analyst Upside: 24.73%
American Eagle Outfitters (NYSE:AEO) is a global specialty retailer that offers accessories, clothing, and personal care items under its American Eagle and Aerie brands. The company’s operations are split into two segments, with American Eagle functioning as an apparel and jeans brand, and Aerie operating as a lifestyle brand that offers apparel, intimates, activewear, and swim collections. OFFLINE by Aerie offers an elaborate collection of activewear and accessories.
The company’s profitability model is strong, which is why analysts are bullish on the stock. It delivered its sixth consecutive quarter of record revenue while simultaneously achieving meaningful operating income growth in fiscal Q2 2024. It is making consistent progress across its strategic priorities, which align with the company’s multi-year growth plan.
American Eagle Outfitters (NYSE:AEO) functions on three key pillars, including amplification of its brands, optimization of its operations, and execution with financial discipline. Strength across these three pillars resulted in a fiscal Q2 2024 revenue of $1.3 billion, a new record for the company. It managed a 4% comparable store sales growth and an 8% total revenue increase for the same quarter, which highlights its strong operation model.
Since American Eagle Outfitters (NYSE:AEO) exited fiscal Q2 2024 with a healthy balance sheet with $192 million in cash and no debt, it leveraged its healthy cash flow to undertake long-term investments in its brands and operations. It also returned $120 million in cash to its shareholders through a combination of share repurchases and dividends, bringing year-to-date returns to $180 million in line with the company’s commitment to deliver value to its shareholders. It ranks eighth on our list of the 12 most undervalued retail stocks to buy according to analysts.
7. Albertsons Companies, Inc. (NYSE:ACI)
Forward P/E: 8.33
Analyst Upside: 27.12%
Albertsons Companies, Inc. (NYSE:ACI) is a US-based food and drug retailer offering general merchandise, grocery items, health and beauty care products, fuel, pharmacy, and other items and services through its digital channels and stores. It has over 2,269 stores across 34 states and the District of Columbia under 20 banners, including Star Market, Shaw’s, Albertsons, Kings Food Markets, United Supermarkets, Haggen, Kings Food Markets, Acme, Carrs, and more. It also operates around 1,725 pharmacies, 1,336 in-store branded coffee shops, 22 distribution centers, 402 adjacent fuel centers, 19 manufacturing facilities, and various digital platforms.
The company has a strong operational model in place. Its Customers for Life strategy is working, driving strong growth in digital sales and pharmacy operations in the second quarter of fiscal 2024. The initiatives also allowed it to drive strong year-over-year growth in its loyalty members and omnichannel shoppers, along with accelerated growth in Albertsons Media Collective. Net sales and other revenue for the second quarter of fiscal 2024 reached $18.6 billion compared to $18.3 million for the second quarter of fiscal 2023. This growth was attributed to a 2.5% increase in the company’s identical sales, while solid growth in pharmacy sales drove growth in identical sales.
Albertsons (NYSE:ACI) also grew its digital sales by 24% during the second quarter of fiscal 2024. However, the increase in net sales and other revenue was partially offset by relatively lower fuel sales. In addition to this, other headwinds are likely to affect the company, including those related to investments in associate wages and benefits, an increasingly competitive backdrop, and an increasing mix of its digital businesses and pharmacy, which carry lower margins. However, it has ongoing and new productivity plans in place to partially offset the effects of these headwinds. Albertsons (NYSE:ACI) takes the fifth spot on our list of the 12 most undervalued retail stocks to buy according to analysts.
6. Guess?, Inc. (NYSE:GES)
Forward P/E: 6.68
Analyst Upside: 28.21%
Guess?, Inc. (NYSE:GES) is a retailer that designs, markets, licenses, and distributes collections of apparel and accessories for men, women, and children. Its segments include Americas Retail, Americas Wholesale, Europe, Asia, and Licensing.
The company’s operations are in line with its expectations. Revenues for fiscal Q2 2025 grew by 10% in USD and 13% in constant currency, reaching $733 million. All of the company’s segments posted revenue growth for the period, except for Asia. Its core Guess business performed positively in European wholesale, continuing its positive trajectory of consistent growth. The company also drove growth in its Americas wholesale business, highlighting the strength of its operational model.
Overall, Guess?, Inc.’s (NYSE:GES) business segments are performing well, contributing to solid growth for the company. These results were attributed to the strong performance of its wholesale business, which experienced strong demand for new products in key categories from multiple customers. The company expects to exceed $3 billion in revenues in fiscal 2025, with revenue growth expectations standing between 9.5% and 11%.
Guess?, Inc. (NYSE:GES) has developed into a platform, expanding its business and holding a competitive market advantage due to its broad channel capabilities, wide global footprint, extensive supply chains, and diverse category portfolio. This allows the company the opportunity to drive long-term sustainable growth and shareholder value creation. It takes the sixth spot on our list of the 12 most undervalued retail stocks to buy according to analysts.
5. The Gap, Inc. (NYSE:GAP)
Forward P/E: 11.43
Analyst Upside: 30.11%
The Gap, Inc. (NYSE:GAP) is a specialty apparel company that offers apparel, accessories, and personal care products for men, women, and children. Its brand portfolio includes Gap, Banana Republic, Old Navy, and Athleta brands. This omnichannel retailer offers products to customers in both brick-and-mortar stores and online, through franchise and company-operated stores, websites, and third-party arrangements.
The Gap, Inc. (NYSE:GAP) takes the fifth spot on our list. The company is functioning with strong financial and operational rigor, which it continually reinforces through cultural accountability, better processes, and a focus on efficiency and effectiveness. Such focused attention is boosting profitability for the company, with net sales growing by 5% in fiscal Q2 2024.
The company is rising in popularity. By introducing trend-right products and employing compelling storytelling, The Gap, Inc. (NYSE:GAP) is benefitting from an innovative media mix leading to greater cultural relevance.
4. Abercrombie & Fitch Co. (NYSE:ANF)
Forward P/E: 13.84
Analyst Upside: 31.36%
Abercrombie & Fitch (NYSE:ANF) is a digitally-led, global omnichannel retailer that offers an assortment of apparel, accessories, and personal care products for men, women, and children. It primarily sells its items through company-owned stores, digital channels, and various third-party arrangements. Its brands include Abercrombie & Fitch, abercrombie kids, and Hollister brands, which are spread over various geographical segments, including the Americas, EMEA, and APAC.
The company demonstrated sustainable profitable growth in 2024. It delivered fiscal Q2 2024 net sales growth of 21%, reaching $1.1 billion with an operating margin of 15.5%. This growth was attributed to Abercrombie & Fitch’s (NYSE:ANF) consumer-centric priorities and long-term growth priorities across regions and brands, making fiscal Q2 2024 the seventh consecutive quarter of net sales growth.
This reflects the strength of the company’s brands, which have managed to grow consistently in a dynamic, often uncertain consumer environment. Its strong global brand portfolio lends it a competitive market edge, and so does the company’s focus on satisfying new and returning customers across experience and product voice. Abercrombie & Fitch (NYSE:ANF) also has an agile modern supply chain and a culture of financial discipline, which further enables the company to deliver its goals across a range of macro environments. It takes the fourth spot on our list of the 12 most undervalued retail stocks to buy according to analysts.
3. Shoe Carnival, Inc. (NASDAQ:SCVL)
Forward P/E: 13.25
Analyst Upside: 42.74%
Shoe Carnival, Inc. (NASDAQ:SCVL) is a family footwear retailer that offers an assortment of casual, dress, and athletic footwear for women, men, and children with a focus on national name brands. The company’s omnichannel stores offer easy access to its elaborate array of branded footwear, with its physical stores carrying shoes in the athletics and non-athletic categories. They are further divided into sub-categories for women, men, and children, along with accessories.
The company attained solid comparable store net sales growth during the back-to-school season, with the most growth attributed to athletics and children’s categories. Its digital-first marketing strategy boosted customer engagement while simultaneously slashing advertising costs. Increased profitability was also attributed to the company’s elaborate brand assortment in this peak shopping season. In addition, the company’s rebannering strategy of converting Shoe Carnival stores to Shoe Station stores delivered positive results, with sales and profit increases exceeding 10% in early tests.
Although Shoe Carnival, Inc. (NASDAQ:SCVL) maintained a strong balance sheet with increased cash reserves and no debt in fiscal Q3 2024, its sales were significantly impacted by two hurricanes. This led to disruptions in customer shopping behavior and store closures. In addition, the relatively warm October weather delayed the winter boot season, causing a 35% decline in boot sales for the company in the month. The retail calendar shift also affected the company’s net sales, which reached $306.9 million in fiscal Q3 2024 compared to $319.9 million in fiscal Q3 2023.
2. J. Jill, Inc. (NYSE:JILL)
Forward P/E: 7.66
Analyst Upside: 53.12%
J. Jill, Inc. (NYSE:JILL) is a national lifestyle brand retailer that offers apparel, footwear, and accessories through two categories: its e-commerce platform and catalog and its retail stores. The company is popular among consumers because of the range of sizes it offers, ranging from normal and extra small to 2X in stores and 4X online.
Despite the company’s dresses being on a strong popularity trend for two years, its core bottoms programs and sweaters took the lead in fiscal Q2 2024. Its cardigan assortment was especially popular. Its more fashion-forward crochet and open-stitch detailed sweaters are also attracting public attention.
J. Jill, Inc. (NYSE:JILL) is taking appropriate action to move products in season in accordance with its disciplined operating model. It is undertaking the ECOVERO fabric launch in support of its initiatives to leverage sustainable fabrications. In addition, its fiscal Q2 2024 earnings reported an ongoing welcome to fall with its new collections of corduroy offerings, sweaters, and trend-rate palettes for the season.
Although the company is seeing softness in retail traffic, it is on track with its strategic priorities, such as its plans for new store openings for the end of 2024. Most of the company’s new store openings are planned in markets with a strong customer base, and are thus expected to not only drive retail sales but also boost omnichannel file growth for the company.
1. Sendas Distribuidora SA (NYSE:ASAI)
Forward P/E: 12.59
Analyst Upside: 60.45%
Sendas Distribuidora SA (NYSE:ASAI), more commonly known as Assai Atacadista, is a retailer based in Brazil that operates in the foot distribution sector. Its operations are divided into two operational segments: Retail and Cash & Carry. The retail segment operates a network of supermarkets, hypermarkets, and convenience shops under various brands in South American countries. Its Cash & Carry segment offers food, bazaar items, and various other products to wholesale customers in Brazil.
Due to its efficient business model, the company has significant capacity for stability in expenses, cash generation, and margin maintenance. Analysts are bullish on the stock because of its strong market presence, as it continues to be assertive and accepted in the markets it is present in.
Sendas Distribuidora SA (NYSE:ASAI) is focusing on store growth, reaching 21 openings in the last 12 months, as per its fiscal Q3 2024 earnings report. This translates to a net addition of 8% in the company’s total sales area, along with four new stores that it delivered in fiscal Q3 2024. Since the company is undertaking actual modifications in its business model instead of simply expanding its operations, it boasts an innovative performance model that allows increased penetration in all different social levels. This also makes it one of the unique business models in Brazil, as it serves consumers from all social levels in the country.
The company holds a history of supporting its growth by its own cash generation ever since its inception in 2011. It has managed to sustain growth in investments and projects without receiving investments, which highlights its solid operational model.
Overall, ASAI ranks first among the 12 most undervalued retail stocks to buy according to analysts. While we acknowledge the potential of retail stocks, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than ASAI but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
READ NEXT: 8 Best Wide Moat Stocks to Buy Now and 30 Most Important AI Stocks According to BlackRock.
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