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Retail Stock Divergence Unfolding in 2014



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  1. Aram says:

    There can be other explanation for underperformance of XRT. Since the price of XRT is influenced the price of its components, let’s take a look at the latters. I’ll use only those mentioned in this post, as it is enough to explain my point.

    1. Groupon has been loosing money since inception, so the price drop shouldn’t be surprising. What is actually surprising it that it’s been included in a retail ETF. Groupon in not a retailer, hence, its performance cannot be an indicator of retail sector.

    2. Amazon has been extremely overvalued for at least 5 years (see https://www.google.com/finance?q=NASDAQ%3AAMZN&fstype=ii – 5 years of almost 0% profit and operating margins, yet stock is up almost 500% over the same period, and was more than 600% up at the end of 2013). With income close to zero and balance sheet value sitting around $22 per share (as of March 2014), even if the stock drops 10 times, it still will be overpriced. So, just AMZN returning to norm will drag XRT down.

    3. For the rest of stock mentioned above I put them on single chart, along with XRT and SPY: https://www.google.com/finance?chdnp=1&chdd=1&chds=1&chdv=1&chvs=maximized&chdeh=0&chfdeh=0&chdet=1401912000000&chddm=41446&chls=IntervalBasedLine&cmpto=NYSEARCA%3AXRT%3BNYSE%3AWMT%3BNYSE%3ATGT%3BNYSE%3AWAG%3BNYSE%3ATIF%3BNYSEARCA%3ASPY&cmptdms=0%3B0%3B0%3B0%3B0%3B0&q=NASDAQ%3ACOST&ntsp=1&fct=big :

    SPY is up 4.5% year-to-day;
    XRT as a whole is down 4.3%;
    WAG up 30.2% (!!!);
    TIFF up 7.3%;
    and TGT, WMT and COST down 9.9%, 2.1% and 2.6% respectively.

    As we can see, some retailers lost value, some gained. But let’s take a closer look at the last three companies, “true retailers”, as opposed to drug store WAG and luxury items seller TIF:

    COST: https://www.google.com/finance?q=NASDAQ%3ACOST&fstype=ii – annual revenues have been growing, quarterly revenues stable for last three quarters, and revenues for Q2 2014 more or less equal to Q2 2013, meaning sales are not declining.

    TGT: https://www.google.com/finance?q=NYSE%3ATGT&fstype=ii – annual revenues just slightly down from a year ago, and Q2 2014 equal to Q2 2013.

    WMT: https://www.google.com/finance?q=NYSE%3AWMT&fstype=ii – annual revenues have been growing, Q2 2014 slightly higher than in Q2 2013.

    So, despite stock price underperformance, the companies’ revenues (and hence sales) are not declining. No need to panic. Not yet.

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