Aritzia Inc. (TSX:ATZ) Makes a Great Stocking Stuffer This Holiday

Aritzia Inc. (TSX:ATZ) is down more than 11% since hitting a 52-week high on November 7. Here’s why you should buy on the dip.

| More on:

The last time I set foot in an Aritzia (TSX:ATZ) store was late October. My wife and I were doing some early holiday shopping at Yorkdale Mall in Toronto while in town visiting family.

The place was slammed.

Since then, the few times I’ve walked by the Aritzia in the Halifax Shopping Centre near where I live, it’s also been packed with people spending money.

I’ve seen the light

I was the biggest Doubting Thomas when it came to Aritzia’s business, but over the past year or so, I’ve become a convert.

Why?

Busy stores certainly help. Perhaps that’s why analysts are also getting more excited about its stock.

“Importantly, U.S. sales growth accelerated to 40% from 20.5% in Q1, a clear sign of growing brand awareness that is driving higher traffic and conversion,” said Canaccord Genuity analyst Camilo Lyon in October. “With a majority of new store openings in F20 expected to be in the U.S., we expect these positive sales trends and rising brand awareness to persist for the foreseeable future.”

Americans are starting to find out about Aritzia.

In the second quarter, the retailer’s U.S. stores accounted for 30% of revenue, up considerably from 25% a year earlier. Add to this the growth rate alluded to by Lyon in the previous paragraph and it’s not hard to imagine Aritzia’s U.S. stores accounting for more than 50% of its overall revenue sometime in fiscal 2019 or early in fiscal 2020.

If you’ve followed Lululemon’s growth over the years, you’ll know that it didn’t start generating more revenue from the U.S. until fiscal 2011, six years after launching sales south of the border.

Aritzia might not get to that point quite as fast, but it will be close. What’s important is that it blows through that number and never looks back.

Where to next?

The Canaccord analyst raised his price target for Aritzia by a buck in October to $21 — 19% higher than where it’s currently trading, providing investors who buy ATZ stock with some nice potential upside in 2019.

Lyon also sees the retailer earning $0.82 a share in fiscal 2019 and $0.93 a share in fiscal 2020. That’s a forward 2020 P/E ratio of 18.9, a reasonable multiple given same-store sales are growing in the double digits, and it hasn’t even scratched the surface in the U.S.

Like Lululemon, the U.S. can make or break you. It was kind to LULU. Aritzia’s recent sales growth in the U.S. suggests it too faces a prosperous future south of the border.

CEO and founder Brian Hill certainly thinks so.

“We think we’re just at the tip of the iceberg as far as our recognition in the United States [goes],” Hill stated in October.

The company continues to invest in its infrastructure, including making investments to grow its e-commerce business. Although it doesn’t break out its online results, the fact that it’s shipping to over 220 countries suggests it soon will.

As far as I can tell, the potential growth in the U.S. and its online sales suggest Aritzia stock is the perfect stocking stuffer this holiday season.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Will Ashworth has no position in any stocks mentioned.

More on Investing

Train cars pass over trestle bridge in the mountains
Dividend Stocks

Is CNR Stock a Buy, Sell, or Hold for 2025?

Can CNR stock continue its long-term outperformance into 2025 and beyond? Let's explore whether now is a good time to…

Read more »

engineer at wind farm
Energy Stocks

Invest $20,000 in This Dividend Stock for $100 in Monthly Passive Income

This dividend stock has it all – a strong outlook, monthly income, and even more to consider buying today.

Read more »

Hourglass and stock price chart
Stock Market

It’s Not Too Late: Invest in These TSX Growth Stocks Now

Solid fundamentals of these top TSX growth stocks could help them maintain strong upward momentum in the years to come.

Read more »

coins jump into piggy bank
Dividend Stocks

The Smartest Dividend Stocks to Buy With $500 Right Now

These top dividend stocks both offer attractive yields and trade off their highs, making them two of the best to…

Read more »

stocks climbing green bull market
Stocks for Beginners

3 TSX Stocks Soaring Higher With No Signs of Slowing

Don't ignore stocks just because they look like they're at a high price. Instead, see exactly why they've driven so…

Read more »

dividends can compound over time
Bank Stocks

Is TD Bank Stock a Buy for Its 5.2% Dividend Yield?

TD Bank stock offers a rare 5.2% dividend yield—can it rebound from challenges and reward contrarian investors? Here's what to…

Read more »

chart reflected in eyeglass lenses
Investing

How Should a Beginner Invest in Stocks? Start With This Index Fund

This Vanguard index fund is the perfect way to start a Canadian investment portfolio.

Read more »

analyze data
Bank Stocks

Is BMO Stock a Buy for its 4.7% Dividend Yield?

Bank of Montreal is up 20% since late August. Are more gains on the way?

Read more »