Retail Investment

With the online retail boom set to continue, Maxim Manturov, Head of Investment Research at Freedom Finance Europe, outlines three of the top investment opportunities to watch out for 

The appeal of well-known brands in the retail sector remains attractive to consumers and investors alike. Due to the Covid-19 pandemic, lockdowns were enforced at various times over the past two years, increasing the demand for online services which has acted as a catalyst for retailers’ financial performance.

In fact, online sales are expected to grow by 16.2% year over year, with an increasing number of retailers jumping on the eCommerce train to meet the ever-changing demands of consumers.

In light of this, Maxim Manturov highlights the top three retail stocks to watch that can deliver strong returns at an optimal level of risk.

The top 3 retail companies to consider

1. Crocs is an American company that designs and develops shoes and accessories for everyday wear. Crocs is currently looking to acquire rival Heydude with the aim of expanding its product portfolio and increasing its addressable market of customers. In turn, this will help to increase the organisation’s sustainable sales growth, cash flow and overall operating margins, which will contribute to a rapid reduction in debt. The acquisition is expected to take place in Q1 2022 and will expand the size of Croc’s addressable market to £92bn ($125bn).

It is also important to note that over the same period in the last two years, Crocs continues to report excellent financial results. In Q3 2021 alone, the company reported a revenue of £461.4m ($625.9m), which is an increase of 73% and 100% respectively. We recommend buying Crocs at £69.6 ($94.8) and hold until it reaches £140 ($190), which should take between 3-6 months and should see a growth potential of 100%.

2. Capri Holdings is a multinational fashion holding company. It develops and promotes clothing, footwear, accessories and perfumes for the world-renowned brands Michael Kors, Jimmy Choo and Versace.

In November, the company reported Q2 fiscal 2022 results that exceeded analysts’ expectations. Against this backdrop, the company’s management has increased its revenue and profit forecasts for the entirety of 2022. Revenue forecasts now stand at £3.9bn ($5.3bn), which is a significant increase from the previous forecast of £3.8bn ($5.15bn).

Capri Holdings is keeping up with the times and tries to participate in existing trends. For example, it has a presence in the NFT token market and creates luxury items for the metaverse. In so doing, the brand wants to be closer to the young, profitable generation.

Capri Holdings is also gradually reducing its debt burden. The company’s debt has now fallen to £840m ($1.14bn) and its cash position is £172m ($234m). The FCF level is stable at £123m ($167m) in Q4 2021. In other words, the company has no liquidity problems. We recommend buying Capri Holdings at £52 ($70.7) and selling at £58.9 ($80), which should take 6 months and see a growth potential of 13.2%.

3. Revolve Group is an online retailer and clothing manufacturer offering around 50,000 models of clothing, footwear, accessories and beauty products from 1,000 different manufacturers. One of the most alluring reasons to invest in Revolve is the company’s business model, which allows the sale of products only through its own online marketplace.  This helps save on-premises rental, property maintenance and third-party platform commissions.

The business also has dynamic inventory management that helps to estimate demand for products and increases inventory turnover rates. This leads to a significant increase in business margins and revenue growth.

On top of this, Revolve has successfully continued to improve its financial performance. The company’s Q3 2021 revenue rose 62% year-on-year and 58% year-on-year to £179.9m ($244.1m) in 2019, with the Revolve brand accounting for the bulk of the revenue at 83.7%. At the end of 2021, several investment houses raised their targets for Revolve shares, such as BMO Capital Markets, Morgan Stanley, and Raymond James.

We recommend buying at £44.5 ($60.6) and selling at £47.9 ($65), which should take 6 months and see a growth potential of 7.3%.