Technology

Is Michaels (MIK) a Cheap Retail Stock Worth Buying?

The Michaels Companies MIK topped our second quarter estimates at the start of September and it posted its strongest sales growth in years as people looked to keep busy while staying home. And the arts and craft-focused retailer’s outlook appears even stronger heading into the holiday shopping season.

Crafty Stock…

Michaels operates roughly 1,300 stores throughout the U.S. and Canada and its relatively unique offerings help it standout in the retail market and fend off competition from the likes of Esty ETSY and Amazon AMZN. The company sells everything from framing and wall décor to crafts and seasonal merchandise geared toward the DIY crowd.

MIK’s second quarter sales jumped 11.1% to hit $1.148 billion, with comparable store sales up 12% for the period ended on August 1. This growth was helped along by an over 350% expansion in its e-commerce businesses and came despite the fact that all of its stores didn’t completely reopen until the start of July.

Michaels executives noted on the company’s earnings call that it benefited from the economic stimulus that many American received, as well as the larger stay-at-home trend.

Michaels, like the giants such as Target TGT has expanded its e-commerce offerings, which includes contactless pick-up, delivery, and more. The company is also working to improve its contactless in-store shopping experience.

 

 

 

 

 

 

 

 

 

 

 

Outlook

Despite its strong quarter, MIK shares are down about 10% since the start of the month from their recent 52-week highs, trading at around $10.20 per share through late morning trading Friday. And the stock is still up 25% in 2020 and 550% since the market’s March lows.

That said, the stock has been on a downward trend over the last five years, as part of a rapidly changing shopping environment. MIK was trading as high as $26 per share in early 2018. This could give it more room to run, but it also showcases where the broader Wall Street sentiment had been for a few years.

Yet the recent positivity does seem justifiable, as it appears ready for more growth during these uncertain times. And investors should note that it recently announced its plans to hire over 16,000 employees for the holiday season, which highlights its strength as millions of Americans remain out of work.

Looking ahead, our Zacks estimates call for MIK’s adjusted Q3 earnings to jump 23% to $0.49 per share on 13% stronger revenue. The company has also seen its earnings revision picture skyrocket since its release, as the nearby chart shows—Q3 up 88% and FY20 up 68%.

 

 

 

 

 

 

 

 

 

 

 

Bottom Line

MIK’s strong earnings revisions activity helps it grab a Zacks Rank #1 (Strong Buy) right now, alongside “A” grades for Value, Growth, and Momentum in our Style Scores system. Michaels is also part of an industry that rests in the top 25% of our more than 250 Zacks industries. Therefore, some investors might want to consider MIK at the moment as a low-priced stock that provides exposure to a niche retail space.  

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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