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5 Undervalued-Predictable Retail Companies to Consider Following Jobs Report

While the Bureau of Labor Statistics revealed on Friday that the unemployment rate has fallen to a new 50-year low of 3.5%, the retail sector is headed in the opposite direction.

Of the 136,000 jobs the U.S. added in September, 40,000 jobs were in education and health services and 30,000 were in professional and business services. In contrast, CNBC's Lauren Hirsch reported retail lost 11,400 jobs, bringing the total number of positions eliminated in this space since its peak in January of 2017 to 197,000.


While this trend may not bode well for the retail space as a whole, investors may still find some good value opportunities among companies that have a business predictability rank of at least four out of five stars and trade below their intrinsic value based on either the discounted free cash flow model or the discounted earnings model.

According to the Undervalued-Predictable Screener, a Premium feature, as of Oct. 7, stocks that met these criteria included Sally Beauty Holdings Inc. (NYSE:SBH), Carter's Inc. (NYSE:CRI), Tractor Supply Co. (NASDAQ:TSCO), Ulta Beauty Inc. (NASDAQ:ULTA) and O'Reilly Automotive Inc. (NASDAQ:ORLY).

Sally Beauty

With a 50% margin of safety, the Denton, Texas-based supplier of beauty products has a $1.80 billion market cap; its shares were trading around $15.02 on Monday with a price-earnings ratio of 7.03 and a price-sales ratio of 0.45. Additionally, the company has a margin of safety of 64% based on the discounted earnings model.

The Peter Lynch chart shows the stock is trading below its fair value, suggesting it is undervalued.

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Weighed down by debt and low interest coverage, GuruFocus rated Sally Beauty's financial strength 4 out of 10. The Altman Z-Score of 3.52, however, indicates it is in good financial standing.

The company's profitability and growth fared much better, scoring a 9 out of 10 rating. While the operating margin is in decline, Sally Beauty is supported by strong returns that outperform a majority of competitors. It also has a high Piotroski F-Score of 7, which indicates operations are healthy. Despite recording a slowdown in revenue per share growth over the past 12 months, the retailer has a four-star business predictability rank. According to GuruFocus, companies with this rank typically see their stocks gain an average of 9.8% per annum over a 10-year period.

Of the gurus invested in Sally Beauty, Mario Gabelli (Trades, Portfolio) has the largest position with 0.62% of outstanding shares. Other top guru shareholders are John Hussman (Trades, Portfolio), Jeff Auxier (Trades, Portfolio), Lee Ainslie (Trades, Portfolio), Steven Cohen (Trades, Portfolio), Joel Greenblatt (Trades, Portfolio), Jim Simons (Trades, Portfolio)' Renaissance Technologies and Chuck Royce (Trades, Portfolio).

Carter's

With a 32% margin of safety based on the discounted earnings model, the Atlanta-based retailer of children's apparel has a market cap of $4.03 billion; its shares were trading around $91.05 on Monday with a price-earnings ratio of 14.94, a price-book ratio of 5 and a price-sales ratio of 1.17.

According to the Peter Lynch chart, the stock is trading near its fair value.

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Carter's financial strength was rated 5 out of 10 by GuruFocus. Although the company has issued approximately $19.78 million in new long-term debt over the past three years, it is at a manageable level due to adequate interest coverage. The robust Altman Z-Score of 3.65 suggests the company is in good financial health.

The company's profitability and growth scored a 9 out of 10 rating on the back of operating margin expansion, strong returns that outperform a majority of industry peers, consistent earnings and revenue growth and a moderate Piotroski F-Score of 4, which indicates operations are stable. It also has a four-star business predictability rank.

With 1.03% of outstanding shares, Diamond Hill Capital (Trades, Portfolio) is the company's largest guru shareholder. Pioneer Investments (Trades, Portfolio), Bernard Horn (Trades, Portfolio), First Pacific Advisors (Trades, Portfolio), the FPA Capital Fund (Trades, Portfolio), Greenblatt, Philippe Laffont (Trades, Portfolio) and Hussman also have positions in the stock.

Tractor Supply

With an 8% margin of safety, the Brentwood, Tennessee-based retailer of farming and ranch supplies has an $11.13 billion market cap; its shares were trading around $93.84 on Monday with a price-earnings ratio of 20.8, a price-book ratio of 7.3 and a price-sales ratio of 1.39. Additionally, the company has a margin of safety of 27% based on the discounted earnings model.

Based on the Peter Lynch chart, the stock appears to be overvalued.

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GuruFocus rated Tractor Supply's financial strength 5 out of 10. While the company has issued approximately $284.36 million in new long-term debt over the past three years, it is at a manageable level due to comfortable interest coverage. Additionally, the high Altman Z-Score of 4.82 suggests the company is in good health financially.

The company's profitability and growth scored a 9 out of 10 rating. Although the operating margin is in decline, it still outperforms over half of its competitors. Similarly, Tractor Supply is supported by strong returns, steady earnings and revenue growth, a moderate Piotroski F-Score of 5 and a four-star business predictability rank.

Pioneer is the company's largest guru shareholder with 1.49% of outstanding shares. Other gurus invested in the stock include David Rolfe (Trades, Portfolio), Simons' firm, Gabelli, Paul Tudor Jones (Trades, Portfolio), Jeremy Grantham (Trades, Portfolio), Cohen and Greenblatt.

Ulta Beauty

With a 26% margin of safety based on the discounted earnings model, the Bolingbrook, Illinois-based retailer of cosmetics and beauty supplies has a market cap of $14.56 billion; its shares were trading around $247.50 on Monday with a price-earnings ratio of 20.95, a price-book ratio of 7.88 and a price-sales ratio of 2.07.

The Peter Lynch chart suggests the stock is overvalued.

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Driven by a low cash-debt ratio of 0.17, GuruFocus rated Ulta's financial strength 5 out of 10. The Altman Z-Score of 5.84, however, indicates it is in good standing financially.

The company's profitability and growth scored a perfect 10 out of 10 rating, driven by margins and returns that outperform a majority of industry peers, consistent earnings and revenue growth, a moderate Piotroski F-Score of 5 and a five-star business predictability rank. GuruFocus says companies with this rank typically see their stocks gain an average of 12.1% per year.

Of the gurus invested in Ulta, Simons' firm has the largest holding with 0.55% of outstanding shares. PRIMECAP Management (Trades, Portfolio), Rolfe, Pioneer, Greenblatt, Jones, Hussman, Ray Dalio (Trades, Portfolio), Cohen and Laffont are also shareholders.

O'Reilly Automotive

With an 18% margin of safety based on the discounted earnings model, the Springfield, Missouri-based auto parts supplier has a $29.82 billion market cap; its shares were trading around $387.91 on Monday with a price-earnings ratio of 23.24, a price-book ratio of 212.95 and a price-sales ratio of 3.19.

According to the Peter Lynch chart, the stock is overavalued.

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O'Reilly's financial strength was rated 4 out of 10 by GuruFocus. Although the company has issued approximately $1.9 billion in new long-term debt over the past three years, it is at a manageable level due to adequate interest coverage. The Altman Z-Score of 3.1 suggests the company is in good financial health.

The company's profitability and growth scored a perfect 10 out of 10 rating on the back of operating margin expansion, strong returns, steady revenue and earnings growth, a moderate Piotroski F-Score of 6 and a five-star business predictability rank.

With 2.47% of outstanding shares, Chuck Royce (Trades, Portfolio) is the company's largest guru shareholder. Pioneer, David Abrams (Trades, Portfolio), Diamond Hill, Gabelli, Cohen, Ainslie, Jones, First Pacific, Greenblatt, Tom Russo (Trades, Portfolio) and Caxton Associates (Trades, Portfolio) are also shareholders.

Other retailers that made the screener included Winmark Corp. (NASDAQ:WINA), Ross Stores Inc. (NASDAQ:ROST) and TJX Companies Inc. (NYSE:TJX).

Disclosure: No positions.

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This article first appeared on GuruFocus.