Macy’s 24.6% return over the past six months has outpaced the S&P 500 by 18.3%, and its stock price has climbed to $24.94 per share. This was partly thanks to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in Macy's, or does it present a risk to your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Do We Think Macy's Will Underperform?
We’re glad investors have benefited from the price increase, but we’re sitting this one out for now. Here are three reasons why there are better opportunities than M, plus one stock we’d rather own.
1. Stores Are Closing, a Headwind for Revenue
The number of stores a retailer operates is a critical driver of how quickly company-level sales can grow.
Macy's operated 663 locations in the latest quarter. Over the last two years, the company has generally closed its stores, averaging 3.2% annual declines.
When a retailer shutters stores, it usually means that brick-and-mortar demand is less than supply, and it is responding by closing underperforming locations to improve profitability.
2. Flat Same-Store Sales Indicate Weak Demand
Same-store sales show the change in sales for a retailer’s e-commerce platform and brick-and-mortar shops that have existed for at least a year. This is a key performance indicator because it measures organic growth.
Macy’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat.
3. EPS Trending Down
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Sadly for Macy's, its EPS declined by 17.8% annually over the last three years, more than its revenue. This tells us the company struggled because its fixed cost base made it difficult to adjust to shrinking demand.
Final Judgment
Macy's doesn’t pass our quality test. With its shares beating the market recently, the stock trades at 10.5× forward P/E (or $24.94 per share). At this valuation, there’s a lot of good news priced in - we think there are better opportunities elsewhere. Let us point you toward one of our top digital advertising picks.
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