Buy or Hold for 3 Specialty Retailer Stock Picks?

Despite inflationary pressures, consumers are demonstrating resilience in the specialty retail sector due to robust spending, increased disposable income, and retailers adapting to changing preferences.

So, quality specialty retailer stocks Aeon Co., Ltd. (AONNY) and Live Ventures Incorporated (LIVE) could be wise additions to your portfolio now. However, I think it could be wise to wait for a better entry point in Best Buy Co., Inc. (BBY) for reasons discussed throughout this article.

The retail market is expected to expand due to increased discretionary spending during the economic recovery. Retail sales grew 0.3% in November over the previous month, reflecting a favorable trend in consumer spending.

The global specialty retailers market is expected to be worth $42.7 billion by 2031, growing at a 4% CAGR. The retail market involves distributing products to customers through associations, sole dealers, and organizations, buying from wholesalers or producers, breaking stock, making it accessible for purchase, and delivering.

Moreover, according to WalletHub’s consumer spending poll, Americans spent $1.57 trillion in October, a $4.04 billion increase from the previous month. Increased disposable income, a better employment market, and the holiday shopping season boost consumer spending.

However, specialty retailers in the United States are confronting challenges such as growing competition from internet retailers and diminishing foot traffic in brick-and-mortar locations. These difficulties have resulted in lower sales and profits for numerous specialty retailers in the United States.

In addition, fluctuating consumer preferences and trends have made it harder for these retailers to meet the demands of their target market.

Let’s delve into the fundamentals of the featured stocks.

Stocks to Buy:

Aeon Co., Ltd. (AONNY)

Headquartered in Chiba, Japan, AONNY operates in the retail industry through General Merchandise Store (GMS) Business; Discount Store Business; Supermarket (SM) Business; Health and Wellness Business; Financial Services Business; Shopping Center Development Business; Services and Specialty Store Business; International Business, and Other Business segments.

AONNY’s trailing-12-month gross profit margin of 36.90% is 8.9% higher than the industry average of 33.89%. Its trailing-12-month CAPEX / Sales of 4.31% is 33.5% higher than the industry average of 3.23%.

For the six-month period, which ended on August 31, 2023, AONNY’s operating revenue increased 4.9% year-over-year to ¥4.71 trillion ($31.19 billion), while its gross profit rose 6.6% from the year-ago value to ¥1.17 trillion ($7.75 billion). In addition, the company’s operating profit came in at ¥117.62 billion ($778.96 million), up 22.7% year-over-year.

The consensus revenue estimate of $65.94 billion for the year ending February 2024 represents a significant increase year-over-year. AONNY’s shares have gained 13.8% over the past nine months to close the last trading session at $21.77.

AONNY’s POWR Ratings reflect this promising outlook. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.

AONNY also has a B grade for Growth, Stability and Quality. It is ranked #3 out of 44 stocks in the Specialty Retailers industry. Click here for the additional POWR Ratings for Sentiment, Value and Momentum for AONNY.

Live Ventures Incorporated (LIVE)

LIVE engages in the flooring, steel manufacturing, and retail businesses. The company operates through segments:  Flooring Manufacturing; Steel Manufacturing; Retail; and Corporate and Other.

LIVE’s trailing-12-month asset turnover ratio of 1.04x is 5.1% higher than the industry average of 0.99x.

In the year that ended September 30, 2023, LIVE’s revenue grew 23.8% year-over-year to $355.17 million. The company’s total assets came in at $421.82 million as of September 30, 2023, compared to $278.64 million as of September 30, 2022. Also, its total current assets came in at $182.85 million, compared to $134.81 million for the same period.

Analysts expect LIVE’s revenue to increase 18.5% year-over-year to $421 million for the year ending September 2024. Its EPS is expected to come in at $6.01 for the same period. The stock has gained 10.5% over the past year to close the last trading session at $26.17.

LIVE’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.

It is ranked #8 in the same industry. It has a B grade for Growth, Value, Momentum and Sentiment. To see additional LIVE’s ratings for Stability and Quality, click here.

Stock to Hold:

Best Buy Co., Inc. (BBY)

BBY engages in the retail of technology products in the United States and Canada. The company operates in two segments, Domestic and International.

BBY’s trailing-12-month ROCE of 43.96% is 286% higher than the 11.39% industry average while, its trailing-12-month EBITDA margin of 6.02% is 44.8% lower than the 10.91% industry average.

For the fiscal third quarter ended October 29, 2023, BBY’s revenue amounted to $9.76 billion, down 7.8% year-over-year. Its gross profit declined 4.3% over the prior-year quarter to $2.23 billion.

However, the company’s total liabilities came in at $10.01 billion as of October 28, 2023, compared to $10.17 billion as of October 29, 2022. Also, its total current liabilities and equity came in at $16.88 billion, compared to $17.02 billion for the same period.

Street expects BBY’s revenue to decrease 6.3% year-over-year to 43.37 billion for the year ending January 2024. Its EPS is expected to decline 12.9% year-over-year to $6.17 for the same period. The stock has gained 11% over the past month to close the last trading session at $75.61.

BBY has an overall C rating, equating to a Neutral in our POWR Ratings system. It has a C grade for Growth, Value, Sentiment and Momentum. It is ranked #19 in the same industry.

Beyond what is stated above, we’ve also rated BBY for Stability and Quality. Get all BBY ratings here.

What To Do Next?

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AONNY shares were trading at $22.07 per share on Thursday morning, up $0.31 (+1.42%). Year-to-date, AONNY has gained 5.54%, versus a 25.38% rise in the benchmark S&P 500 index during the same period.

Rashmi is passionate about capital markets, wealth management, and financial regulatory issues, which led her to pursue a career as an investment analyst. With a master's degree in commerce, she aspires to make complex financial matters understandable for individual investors and help them make appropriate investment decisions.

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