A millionaire-maker stock is defined as one that generates cumulative returns of at least 1,000% over time. Several TSX growth stocks, such as goeasy and Shopify, have returned over 1,000% in the past decade, creating massive wealth for shareholders.
Another TSX stock that has the potential to replicate these gains is Aritzia (TSX:ATZ). Valued at $4 billion by market cap, Aritzia stock is down 38% from all-time highs. The company went public in October 2016 and has since returned 112% to shareholders, higher than the 87% returns generated by the TSX index.
Let’s see why I remain bullish on ATZ stock and expect it to outpace the broader market in the next 10 years.
An overview of Aritzia stock
Aritzia is a design house with an innovative global platform. It operates in the luxury segment and is among the most popular retail companies in Canada. Founded in 1984, Aritzia ended the most recent quarter with 117 boutiques located in Canada and the U.S.
Aritzia is a multi-channel retailer with an expanding brand awareness south of the border due to its widening geographical footprint and track record of solid e-commerce growth.
Over the years, Aritzia has developed its boutique network in a measured and disciplined manner. It has a portfolio of boutiques in premier real estate locations, such as high-performing retail malls. Aritzia emphasizes that its strong brand value makes it a sought-after tenant for locations in premier shopping destinations.
In addition to opening new boutiques, Aritzia aims to generate attractive returns on capital by enhancing key elements of existing boutiques. For example, Aritzia explains, “We continue to elevate our boutique design and believe we deliver a fully immersive experience, including enhancing the sensory experience by adding A-OK cafes in select boutiques.”
A focus on e-commerce and distribution
Aritzia continues to invest in digital capabilities to support its e-commerce business, which is now a key driver of sales. In fiscal 2020, online sales accounted for 23% of total revenue, and this number surged to 35% in fiscal 2023 (ended in February).
Aritzia is focused on increasing its high-margin direct-to-consumer business by optimizing online operations to enhance personalization, resulting in higher conversion rates and client loyalty.
Aritzia has two distribution centers in Canada and one in the U.S. that are well-positioned to service its network of retail locations as well as online demand. Its distribution centre includes a 223,000-square-foot facility in British Columbia, a 550,000-square-foot facility in Ontario, and a 255,000-square-foot third-party facility in Ohio. Additionally, it has also leased additional space to manage inventory storage.
Is ATZ stock undervalued?
Due to a sluggish macro environment, Aritzia increased its sales by just 5% year over year to $653.5 million in the fiscal third quarter of 2024. Moreover, its gross margins narrowed by 180 basis points to 41.5%, while adjusted earnings before interest, tax, depreciation, and amortization fell by 23.3% to $91.8 million.
Analysts expect ATZ to increase sales by 6.2% to $2.33 billion in fiscal 2024, while adjusted earnings are forecast to narrow by 50% to $0.91 per share. However, top-line growth is forecast at 12.5%, while earnings are also poised to double in fiscal 2025.
Priced at 20.44 times forward earnings, ATZ stock is quite cheap. Bay Street also expects ATZ to end fiscal 2028 with earnings of $2.6 per share. If ATZ is priced at 25 times forward earnings, the stock should surge to $65 in the next three years, indicating an upside of 80% from current levels.
