The retail industry has grown remarkably over the past year on the back of increasing demand for online shopping, and immersive experiences offered by digitally sophisticated retail stores. While most stocks in the sector are thriving, there are some significantly overvalued players that Wall Street analysts detest. Cases in point are Gap (GPS) and Abercrombie & Fitch (ANF).Their weak fundamentals do not justify their premium valuations. Hence, we think they should be avoided now.The COVID-19 pandemic has changed the retail landscape in a big way as consumers learned to depend much more on online shopping and physical retailers responded with speedy rollouts of new and advanced online shopping facilities. While brick-and-mortar retail has been dying a slow death at the hands of growing e-commerce trends, retailers equipped with omnichannel offerings have witnessed steady growth.
Investors’ confidence in the retail industry is evidenced by the SPDR S&P Retail ETF’s (XRT) 137.8% returns over the past year versus the SPDR S&P 500 Trust ETF’s (SPY) 39.9% gains over this period.
Furthermore, retailers offering personalized customer experiences should continue to experience accelerated growth in their businesses. Although the economy’s reopening and strategic changes in business models have been helping some retailers gain considerable traction, stocks such as The Gap, Inc. (GPS) and Abercrombie & Fitch Co. (ANF) are trading at lofty valuations despite possessing weak fundamentals. As such, Wall Street analysts are bearish about their growth prospects. So, we think they are best avoided now.