You’re most likely not reading this naked; clothes and fashion are important in our lives. What makes clothing significant is that it’s essential and nowhere near controversial as tobacco or weapons are.
The fast fashion industry has been the cynosure of investors’ eyes over the last few years. These companies, including names such as H&M and Inditex, have been part of the global equity portfolio of major funds for a long time.
Fast fashion brands are increasingly working on prising meaty chunks of new markets while targeting new trends and demographics. So how can an investor leverage this? This article considers the six hottest fast fashion stocks for savvy investors.
6 Fast Fashion Stocks for the Wise Investor:
Nike (NYSE: NKE)
The world’s biggest maker of athletic shoes boasts a market capitalisation of $176.66 billion. Its average trading volume is 7.20 million, with a P/E ratio sitting at 30.6. The dividend yield is 1.19 or 1.06 per cent.
The 12-month stock price forecast, according to 28 analysts, is a median target of $164.50, with a high estimate of $195.00. The low estimate is $139.00.
The median estimate represents a +50.37 per cent increase from the previous price of $109.40.
Thirty-one polled investment analysts consent to a BUY for Nike Inc. stock. This rating has been steady since the start of May, after being unchanged from a BUY rating.
Skechers (NYSE: SKX)
Don’t we all love Skechers footwear? They make trendy shoes for men, women, and children under different lines. The company posted impressive financials for 2021, with revenue surpassing $6 billion. It represents a 36.71 per cent increase compared to the $4.6 billion from the previous year.
Earnings were $741.5 million – more than six-and-a-half times the previous year’s.
In the view of 19 analysts, the average rating for SKX stock is BUY. The 12-month stock price forecast is $62.61, a 68.99 per cent increase from the latest price.
Buying SKX looks promising as earnings are likely to grow 12.9 per cent per year, and they grew 416.2 per cent year-on-year. It’s trading at well below its market value. But, the company maintains a high level of non-cash earnings, and insider selling has been a recent menace.
lululemon athletica (NASDAQ: LULU)
2022 has not been a good year for lululemon athletica. The budding athletic apparel maker has shown enormous potential to overturn the dynamics of an industry dominated by Adidas, Nike, and other behemoths. But a 21 per cent dip in its price in 2022 could mean that a different kind of reality is in play.
The pandemic helped the company’s premium-priced products to appeal to a wide range of demographics that wanted comfortable stay-at-home clothing. But, it appears that things have changed a bit. How significant could this bit be, though?
After LULU hit its all-time high of $485.82 in intraday trading, it began the gravity-assisted downward slide. Despite this, the company defied Wall Street estimates with its Q3 2021 (ending October 31) earnings report. It still didn’t provide the needed traction for the stock, though.
On January 10, 2022, a management press release specified that fiscal Q4 revenue and adjusted EPS would be a cautious $2.125 billion and $3.25, respectively.
lululemon athletica faces similar issues to Nike in terms of consequences of the pandemic, including increased capacity constraints, operating hours per location, and limited personnel.
Despite the supply chain issues, the P/E ratio for lululemon is 47, which is an attractive valuation if you consider the stock’s remarkable history of revenue and profit growth.
Is LULU a BUY? It certainly is.
Stitch Fix (NASDAQ: SFIX)
Stitch Fix’s Q2 earnings report featured a bleak outlook for fiscal 2022 growth and profits.
In addition, new users don’t seem convinced to sign up for the company’s online-styling plans. However, plans are still in place for its popular direct purchasing platform.
As soon as CEO Elizabeth Spaulding took a conference call with investors, the stock regained much of its lost ground as Wall Street dared to believe again. The long-term Stitch Fix outlook is rife with opportunities to keep an investor optimistic.
Sixteen analysts offered 12-month price forecasts for Stitch Fix Inc. with a median target of $11.00. The high estimate is $20.00, and the low estimate weighed in at $8.00. The median estimate is a +40.13 per cent increase from the previous price of $7.85.
The current consensus from 17 polled investment analysts is to HOLD Stitch Fix Inc. This rating has been steady since April 2022.
Stitch Fix will need to deal with the slower growth of new users recorded in Q2.
Executives described both short-term factors responsible for this as short-term. So, there’s hope on the horizon.
Average annual spending for existing customers is now a record $549, suggesting shopper satisfaction and strong engagement.
Stitch Fix is also making forays into new markets. For instance, the kids niche and UK market helped seal robust growth through late January.
Management considers the freelance platform a growth mine, and it’s already grown 30 per cent despite necessitating unique marketing and selling strategy.
Overall, it makes sense to BUY SFIX, even if just for its long-term earnings and growth potential.
Farfetch (NYSE: FTCH)
Farfetch is a multi-subsidiary online marketplace provider for luxury fashion goods. They have a strong presence in the US and UK, though the company’s footprint is of global proportions.
A market cap of $3.03 billion is a fair piece of the fast fashion market for a company focused on online distribution.
The company is projected to become profitable this year, with revenue expected to jump 17.18 per cent per year. It’s, however, trading at 80.3 per cent below market estimates.
Earnings could decline by an average of 65.9 per cent each year for the next three years, perhaps explaining the erratic share price over the previous quarter. Shareholders have also been diluted this past year.
The P/E ratio is 2.1x, making FTCH a good value stock compared to the US Online Retail Industry average (13.3x) and the US market (6x).
Should you buy FTCH? The company has managed to get in on a sizeable chunk of the online fashion market, and analysts continue to push for a BUY. So you might well consider adding this stock to your growing portfolio.
Target (NYSE: TGT)
Should you invest in America’s second-largest retail chain? Not without doing your homework and hearing what trusted experts have to say. As a general merchandise retailer, the company is betting on plenty of goods to help move its revenue needle to the right.
TGT is currently trading at significantly lower than its fair value. Nevertheless, earnings are forecast to grow 3.21 per cent per year and grew by an eye-popping 59.2 per cent over the past year.
Dividends on TGT stock are a reliable 2.23 per cent.
However, it’s worth noting that Target’s debt level is quite high, and there was significant insider selling over the last quarter. In addition, being a relatively stock, TGT is not less volatile than other US stocks. It typically dithers around the +/- 6 per cent a week zone. Over the past year, however, weekly volatility has remained stable.
In terms of the industry performance, TGT performed worse than the US Multiline Retail industry, which returned 5.5 per cent over the previous year. It also underperformed the US market, which returned a negative 8.1 per cent over the past year.
Twelve-month price forecasts from 26 analysts give a median target of $274.50 for Target Corp. The high estimate is $305.00, while the low estimate is $171.00. The median estimate is 69.73 per cent more than the last price of $161.73.
Should you then buy target? For a $75 billion company with a day trading range of $155.20 – $168.00, TGT won’t go down without a fight, so it’s safe to BUY, considering that it’s more likely to rise again than to tap out.
Analyst consensus from 30 polled investment analysts says BUY TGT stock. It’s been a relatively stable rating since May.
Issues With Fast Fashion Stocks
While these companies are an attractive buy, considering the strong omnipresent demand for fashionable clothing, they have a few inherent problems that haven’t yet signalled their expiry date.
H&M, for instance, has taken significant steps to adapt its manufacturing and supply chain to the times and investor requirements. It didn’t just do compliance but went ahead to build a strong basis for sustainable improvement.
The times have evolved and it’s important to add companies to your portfolio that will positively impact it.
Did you hear of the case of Boohoo, the UK fashion group that paid workers less than minimum wage? That singular scenario crushed the company’s fortunes as casual wear sales crashed at the height of the pandemic.
That said, fast fashion brands are a great opportunity to invest for tomorrow.
Note: Please do not invest money or assets in the financial markets that you cannot afford to lose. This article should not be construed to be investment advice and is for information purposes only