With headline growth shifting out of “neutral," Children’s Place (PLCE) — a conservative, value-oriented idea for 2019 — is extremely attractive here at a 43% discount from its 52-week high, observes growth stock specialist Hilary Kramer, editor of GameChangers.
The negative growth story is overdone: the clothing retailing chain isn’t faltering so much as shifting the merchandise mix down market to capture share from bankrupt rival Gymboree.
Exploiting that opportunity requires sacrificing 1% of margin in the immediate term but I still see revenue ramping 4%-5% a year to balance the trend. I expect year-over-year earnings growth to recover before 2Q19. After that, consensus looks a little low once those shoppers are lured away.
We’re looking at 12X forward earnings as it is, so it doesn’t take a lot of added sales or margin reflation to make that proposition a classic buy.
I’m looking at the online operation to feed that growth. After all, children’s apparel is a tricky business to move online because shoppers want to see the clothes and in many cases have the kids try them on.
Bringing an online component into the brick-and-mortar retail presence makes a lot more sense. At that point, it’s less about diverting market share from other outlets and more about smart inventory management that ensures that every shopper gets access to every piece of merchandise — in the physical cart if possible, delivered if not.
In the near term, the should at least test $130 once the market mood recovers. The yield isn’t huge (2%) but it’s enough to keep shareholders motivated for even better things ahead.
And it can definitely do great things once management proves the new business model. When a competitor fumbles, smart players invest resources to score points. That’s what’s happening now and it’s why I see PLCE continuing its track record for delivering strong returns on assets.
Subscribe to Hilary Kramer's GameChangers here…