Winmark Corporation (NASDAQ:WINA), a USD$580.90M small-cap, is a retail company operating in an industry which has experienced a structural shift in terms of digitalization. Looking at trends for growth in macroeconomic factors such as inflation and interest rates are important when thinking about investing in retailers. Retail analysts are forecasting for the entire industry, a strong double-digit growth of 10.46% in the upcoming year, and an optimistic near-term growth of 17.21% over the next couple of years. However, this rate came in below the growth rate of the US stock market as a whole. I’ll take you through the retail sector growth expectations, and also determine whether WINA is a laggard or leader relative to its retail peers. View our latest analysis for Winmark
What’s the catalyst for WINA'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 of 6.48%, beating the US market growth of 4.49%. WINA leads the pack with its impressive earnings growth of 10.62% over the past year. This proven growth may make WINA a more expensive stock relative to its peers.
Is WINA and the sector relatively cheap?
The retail sector's PE is currently hovering around 16x, below the broader US stock market PE of 22x. This means the industry, on average, is relatively undervalued compared to the wider market - a potential mispricing opportunity here! Furthermore, the industry returned a higher 13.12% compared to the market’s 9.99%, making it a potentially attractive sector. On the stock-level, WINA is trading at a higher PE ratio of 24x, making it more expensive than the average retail stock.
What this means for you:
Are you a shareholder? WINA recently delivered an industry-beating growth rate in earnings, which is a positive for shareholders. However, this higher growth is also reflected in WINA’s high price, suggested by its higher PE ratio relative to its peers. If you’re bullish on the stock and well-diversified by industry, you may decide to hold onto WINA as part of your portfolio. However, if you’re relatively concentrated in retail the WINA’s high PE may signal the right time to sell.
Are you a potential investor? If WINA has been on your watchlist for a while, now may not be the best time to enter into the stock since it is trading at a higher valuation compared to other retail companies. However, that being said, its industry-beating growth delivered may be the reason for high relative valuation. I suggest you look at WINA’s future cash flows in order to assess whether the stock is trading at a reasonable price on this basis.
For a deeper dive into Winmark'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.