The Bon-Ton Stores Inc (NASDAQ:BONT), a USD$9.05M small-cap, operates in the retail industry which has experienced a structural shift in terms of digitalization, as well as the expected ups and downs of the economic cycle. Retailer profits closely track the overall performance of the economy. Looking at trends for growth in macroeconomic factors such as inflation, consumer confidence and interest rates are important when thinking about investing in the retail industry. Retail analysts are forecasting for the entire industry, negative growth in the upcoming year, and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the Australian stock market as a whole. An interesting question to explore is whether we can we benefit from entering into the retail sector right now. Below, I will examine the sector growth prospects, as well as evaluate whether BONT is lagging or leading its competitors in the industry. Check out our latest analysis for Bon-Ton Stores
What’s the catalyst for BONT's sector growth?
E-commerce continues to be the fastest growing sales platform for consumer goods, changing the landscape for retailers. A large number of store closures and bankruptcies illustrates the shift in consumer preferences and increasing online competition. In the past year, the industry delivered growth in the teens, beating the Australian market growth of 6 percent. BONT lags the pack with its negative growth rate of -27 percent over the past year, which indicates the company has been growing at a slower pace than its retail peers. As the company trails the rest of the industry in terms of growth, BONT may also be a cheaper stock relative to its peers.
Is BONT and the sector relatively cheap?
The retail industry is trading at a PE ratio of 14 times, below the broader Australian stock market PE of 22 times. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 15 percent on equities compared to the market’s 16 percent. Since BONT’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge BONT’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? BONT has been a retail industry laggard in the past year. If your initial investment thesis is around the growth prospects of BONT, there are other retail companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how BONT fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If BONT has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its retail peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at BONT’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Bon-Ton Stores's stock, take a look at the company's latest free analysis report to find out more on its financial health and other fundamentals. Interested in other retail stocks instead? Use our free playform to see my list of over 200 other retail companies trading on the market.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.