This post originally appeared on Stock Market News
Low foot traffic and a booming e-commerce industry have compelled many retail companies to create strong online portals and delivery systems to stay afloat in the “new normal.” However, the progress made here by many retailers and an expected revival of foot traffic with the reopening of the economy have attracted significant investor attention to retail stocks, in some instances leading to a disconnection of their price levels from their fundamental strength. Considering their fundamental strength and near-term growth prospects, we think Lululemon Athletica (NASDAQ:), V.F. Corporation (VFC), Burlington Stores (NYSE:), and Burberry (BURBY) now look significantly overvalued. So, it’s wise to avoid these stocks.After suffering a major setback from a near halt in store sales and strong competition from existing e-commerce players in the first half of last year, many retail companies have now adopted online platforms and efficient delivery mechanisms to stay afloat. Now that the economy is reopening, these companies’ brick and mortar stores sales have started recovering too. Furthermore, the $ 1,400 direct stimulus checks paid out by the federal government have contributed to a favorable backdrop for retailers through increased consumer spending.
These factors have buoyed investors’ optimism about the retail space over the past few months. This is evidenced by the SPDR S&P Retail ETF’s (XRT) 70.5% returns over the past six months versus SPDR S&P 500 Trust ETF’s (SPY) 21.4% gains over this period.
However, many retail stocks have moved too far too fast based solely on investor optimism, and their financials and growth prospects don’t justify their current price levels. With weak fundamentals and growth prospects, Lululemon Athletica Inc. (LULU), V.F. Corporation (VFC), Burlington Stores, Inc. (BURL), and Burberry Group plc (OTC:) currently look overvalued. So, we think they are best avoided now.
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