What happened
Shares of Ascena Retail Group Inc (ASNA) were moving higher today, riding a broader wave in retail stocks as investors snatched up shares of traditional retailers. There was no specific news item driving the shift, but investors may be anticipating a strong holiday season, as well as a round of robust earnings reports when the retailers report in November. Or it's possible the move may be a flight to safety as tech and high-growth stocks have plummeted lately amid fears of rising interest rates.
Ascena shares were up 11.4% as of 3:16 p.m. EDT, while the SPDR S&P Retail ETF (XRT 0.04%) jumped 2.8%. Other struggling retailers that posted strong gains on the day included J.C. Penney and Chico's FAS.
Image source: Getty Images.
So what
Today's surge mirrored another one yesterday that propped up stocks like Macy's, which was up as much as 8% on a broader retail surge.
Ascena, the parent of chains like Ann Taylor, Lane Bryant, and Justice, isn't in as strong a position as Macy's as the stock has plummeted in recent years as the company has struggled to turn a profit and been forced to close stores. However, Ascena may have considerable upside as the company seems to be turning a corner. Comparable sales were up 4% in its most-recent quarter and improved at all of its brands, and the stock has doubled since May after promising earnings reports among retail peers seemed to change investor sentiment.
Now what
Even though the stock is already up 80% year to date, it's still cheap by most conventional metrics. Ascena has nearly 5,000 stores, but the company is worth less than $1 billion, meaning its average store is valued at less than $200,000 and the stock trades at a price-to-sales ratio of just .12. In other words, if the company is able to take advantage of the strong consumer economy and deliver profit growth, the stock could surge.
Analysts are expecting modest results when the company reports fiscal first-quarter earnings next in the beginning of December, forecasting $0.04 in earnings per share, down from $0.11 a year ago, and a revenue decline of 2.1%, to $1.56 billion. That could represent a low bar for Ascena to jump over.
If other retailers deliver strong results in November, expect to Ascena shares to continue moving higher into its December report.
