The retail industry has been facing multiple challenges in 2023, with some of the headwinds including inflation, supply chain disruptions, and macroeconomic issues. Additionally, the tight monetary policy has also had an impact on consumption trends to a certain extent. However, some quality retail stocks still look attractively valued amid these unfavorable factors.
Currently, the consensus on Wall Street is that the Federal Reserve has ended its interest rate hike, and the situation in 2024 will be much better than this year. Although concerns about global slowdown remain, interest rate cuts are beneficial for stimulating investment and consumer spending.
As a result, retail stocks with attractive valuations are likely to rise in the next few quarters. If you are looking for retail stocks with significant growth potential, it may be difficult for giants like Walmart and Costco to double in value. Therefore, some smaller companies with strong fundamentals and earnings are more worth watching.
Moreover, as most companies pursue Omni-Channel Sales, it is also important to focus on e-commerce stocks while watching traditional retailers. Here are three stocks that may rise significantly in the next year:
1. $MINISO Group Holding Limited(MNSO)$
The Miniso Group stock has returned nearly 100% so far this year, and it is expected to double in value from the current level next year. It is worth noting that even after a significant rebound, the stock's forward P/E ratio is only 23 times. And the near 2% dividend yield is also attractive, which is one reason investors are bullish on the stock.
From a growth perspective, Miniso Group is one of the most valuable retail stocks to buy. In the first quarter of 2024, the company reported a 36.7% year-over-year increase in revenue to $519.6 million. In the same period, adjusted EBITDA rose 52.8% year over year to $139 million.
As of the first quarter of 2024, Miniso Group had 6115 stores in total. In the past year alone, the number of stores increased by 819. At this pace and with an asset-light model, analysts expect earnings to remain strong, which should support Miniso Group's stock price and lead to healthy dividend growth.
The Coupang stock has been range-bound this year and seems to be significantly undervalued. Even though the recent third-quarter earnings missed expectations, investors have reason to believe that there is still significant upside potential for Coupang's share price. The 15 analysts who cover the stock have set a median 12-month price target of $21. The most bullish analyst on CPNG has a price target of $30, which implies almost 100% upside.
In the third quarter of 2023, Coupang reported a 21% year-over-year increase in revenue to $6.2 billion, and an adjusted EBITDA margin of 3.9%. Coupang's active users grew 14% year over year to 20 million. With average revenue per user rising, the company has great prospects for revenue growth. Coupang's operating cash flow and free cash flow over the past 12 months were $2.6 billion and $1.9 billion, respectively. The momentum of margin expansion and cash flow growth, supported by operating leverage, will continue.
The Sea Limited stock continues to trade at a discounted level recently. Still, analysts see the stock as attractive at its current level of $39 a share. Sea Limited's business is highly diversified, involving digital gaming, e-commerce and digital financial services. However, the e-commerce segment could become a potential cash flow machine in the coming years.
The first reason to be optimistic about this retail stock is the company's presence in high-growth markets in Southeast Asia, Latin America, and other emerging Asian countries where e-commerce penetration is still low. Against the backdrop of low e-commerce penetration in these markets, Sea Limited is poised for strong growth.
Specifically in the field of retail e-commerce, the company reported revenue of $2.2 billion in the third quarter of 2023, with revenue growth of 16% year-on-year. However, earnings before interest, tax, depreciation and amortization (EBITDA) losses have been persistent, which is a potential concern.
Analysts expect the company's EBITDA losses to narrow in the coming quarters. Operating leverage combined with low inflationary pressures is likely to support margins. At the same time, Sea Limited has a healthy cash cushion of $7.9 billion, which could help support aggressive investments to achieve growth.
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