In our school days, there was an idiom, “A stitch in time saves nine” -- meaning that timely action may prevent serious loss later on. How about applying the same principle to your portfolio? Exiting the underperforming stock at the right time helps maximize your portfolio’s return. So, as an investor it would be a rational decision to shun from your portfolio a stock that has been witnessing falling share prices and estimates, before it hurts your return.
Pacific Sunwear of California Inc (NASDAQ:PSUN), a specialty retailer of apparel, accessories and footwear, is one such stock whose share price has been plunging. The Zacks Consensus Estimate has also witnessed a downtrend.
Where’s the Stock Price Heading?
Shares of Pacific Sunwear touched a 52-week low of $1.01 yesterday, before closing trade at $1.04. Year to date, shares have nosedived more than 50%. Moreover, the stock has plunged roughly 40% following its last earnings release on May 28. It has been nearly six months since this Zacks Rank #4 (Sell) stock hit a 52-week high. It had last reached the pinnacle on Jan 14, 2015.
After two consecutive quarters of earnings beat, Pacific Sunwear succumbed to a negative earnings surprise of 9.1% in the first quarter of fiscal 2015. The company recorded adjusted loss of 12 cents a share in the quarter, wider than both the Zacks Consensus Estimate and the year-ago quarter loss per share of 11 cents.
Net sales of this Anaheim, CA-based company were $166.5 million, down 2.7% year over year and short of the Zacks Consensus Estimate of $171 million. Comparable-store sales (comps) fell 2%. The unrest at the West Coast port and unfavorable weather conditions impacted the company’s performance.
Which Way Are Estimates Treading?
Apart from its discouraging performance, Pacific Sunwear provided a subdued outlook. Management envisions the bottom line for second-quarter fiscal 2015 to range between a loss of 5 cents and earnings of 1 cent per share compared with a loss of 3 cents recorded in second-quarter fiscal 2014. Moreover, the company expects comps to be in the range of negative 4% to flat.
Analysts polled by Zacks are now less constructive on the stock’s future performance. Over the past 60 days, the Zacks Consensus Estimate of a loss of 23 cents and 10 cents for fiscal 2015 and fiscal 2016 has widened by 4 cents and 3 cents, respectively.
With its share price plunging and estimates witnessing downward revisions, it would not be prudent to keep this stock in your portfolio at least for the time being.
Here, we have highlighted 3 stocks in the Apparel Stores space for investors, on the basis of their Zacks Rank, sound Zacks Consensus Estimate revision and sturdy fundamentals:
3 Prominent Picks
Boot Barn Holdin (NYSE:BOOT), a lifestyle retail company operating specialty retail stores is a solid bet. The stock sports a Zacks Rank #1 (Strong Buy) and has surged roughly 80% year to date. The Irvine, CA-based company delivered positive earnings surprises in the trailing three quarters, and has a long-term earnings growth rate of 21%. The company is expected to witness earnings growth of 20% in fiscal 2016 and 23% in fiscal 2017. Further, the Zacks Consensus Estimate has been showing an uptrend over the past 60 days.
Another Zacks Rank #1 stock that investors may look forward to is Express Inc (NYSE:EXPR). This specialty apparel and accessories retailer has surged 27% so far this year. An average positive earnings surprise of 23.3% over the trailing four quarters and a long-term earnings growth rate of 15% make this Columbus, OH player quite an attractive investment option. The company is expected to witness earnings growth of 48.1% in fiscal 2015 and 11.4% in fiscal 2016. The Zacks Consensus Estimate too has trended upward over the past 60 days.
We also suggest investing in American Eagle Outfitters (NYSE:AEO), a retailer of apparel and accessories. This Zacks Rank #2 (Buy) stock has amassed a year-to-date return of about 30% and has a long-term earnings growth rate of 12.5%. The Pittsburgh, PA-based company has delivered an average positive earnings beat of 14.1% over the trailing four quarters. It is expected to witness earnings growth of 51.7% in fiscal 2015 and 10% in fiscal 2016. The Zacks Consensus Estimate too has been on the rise over the past 60 days.
Bottom Line
Investors can confidently end their search at stocks with a better Zacks Rank status of either #1 or #2, which encompasses its strong fundamentals, promises favorable price movement and highlights analysts’ constructive view on the same via positive estimate revisions. A sturdy portfolio always gives higher returns.