Stronger-than-expected retail sales in December indicate an optimistic future for the U.S. economy and retail stocks. The rise in online purchases has contributed to the solid economic ground, prompting economists to revise growth estimates for 2024. The shift toward online shopping and resilience in the labor market are key factors driving the retail industry, while a bipartisan deal under consideration in Congress could further bolster spending. Despite some potential challenges, the outlook for retail stocks in 2024 remains positive, with confidence in the economy’s ability to avoid a downturn.
PDD Holdings (PDD)
PDD Holdings (NASDAQ:PDD) is a Chinese online retailer that operates two main businesses: Pinduoduo, an e-commerce platform and Temu, an online marketplace. This retail stock is currently trading at $143.16, up 50.93% YoY. Analysts are bullish on the stock, with 38 analysts offering a 12-month median price target of $169.66, representing an 18.51% increase from current levels.
PDD Holdings demonstrated robust growth, achieving YoY revenue growth of 94% in Q3 2023, beating analyst estimates by $2.23 billion. The company displayed extraordinary operational capability, illustrated by its exceptional Levered Free Cash Flow (FCF) margin of 36.43%, far exceeding the sector median.
PDD’s exceptional financials can be attributed to its focus on providing low-priced products. Its low-price strategy has differentiated the company, attracting a large customer base. Additionally, the retailer has recently prioritized service improvements and benefits such as quality assurance and fast refunds to entice consumers. PDD is also expanding its overseas e-commerce marketplace, Temu. The platform exploded in popularity due to its extremely cheap products and large discounts. It has already amassed over 100 million active users and is available in 40+ countries. This presents an opportunity for PDD Holdings to scale Temu into a major growth avenue.
PDD holds enormous upside potential because of its strong financials, unique low-price strategy and innovative e-commerce marketplace.
Lululemon Athletica (LULU)
Lululemon Athletica (NASDAQ:LULU) is a multinational athletic apparel retailer popular for its high-quality products. A pioneer in athletic apparel, LULU stock has surged 45.37% YoY to a current price of $470.73. Analysts are bullish on the stock, with 33 analysts offering a median 12-month price target of $531.00, representing a 12.80% upside from current levels.
The sports apparel industry is expected to reach $271.77 billion by 2030, exhibiting a CAGR of 4.24%. Lululemon’s financials are equally impressive. In the company’s latest earnings report, net revenue increased 19% YoY to $2.2 billion and gross profit increased 21% YoY to $1.3 billion. For the current quarter, management expects continued growth, with net revenue expected to grow 14% to 15%.
Furthermore, there are no signs that indicate Lululemon’s growth will decelerate. Management forecasts that net revenue will reach $12.5 billion by 2026. The company’s primary growth drivers focus on expanding men’s, international, and direct-to-consumer segments.
Lululemon’s strong financial strength and ambitious expansion plans make LULU an attractive “buy” for investors.
Shopify (SHOP)
Shopify (NYSE:SHOP) is a growing e-commerce platform focused on small businesses, allowing users to market their products to customers quickly and easily. Currently valued at $80.32, SHOP recently saw a YoY growth of 100.9%.
The overall e-commerce industry is in place for large market capitalization by Shopify, as seen by its $103.5 billion market cap. Projected to reach $3.6 trillion in 2024, forecasts expect a full market valuation of $5 trillion by 2028. Further, the overall e-commerce platform holds a 4-year CAGR of roughly 9%.
As expected by industry analysts, SHOP held great success this past quarter in all metrics. Revenue-wise, SHOP saw a 25.48% revenue increase, bringing in $1.71 billion in Q3 ‘23. Both net income and diluted EPS shot up, with figures of $718 million and $0.55, respectively. Shopify continued to defy forecasts, exceeding consensus industry estimates in EPS and revenue by 65.76% and 2.64%. Consistent financial success sets SHOP up for future achievement.
Largely, SHOP is expected to substantially increase its revenue size through its new deal with Google Cloud. In January 2024, Shopify agreed to expand its partnership with Google to include Google Cloud Marketspace, creating more integration into Google’s software and user interface. Overall, this move was primed at improving customer usability, consolidating an impressive Google Cloudspace and browser capabilities with the marketspace commerce options of Shopify, and increasing business coverage and net income.
On the date of publication, Michael Que did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
