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Why The Michaels Companies Stock Fell Hard on Monday

By Jon Quast – Dec 14, 2020 at 3:42PM

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One analyst says there's only about 17% upside, which counterintuitively sent shares sliding.

What happened

Shares of The Michaels Companies (MIK) dropped on Monday, after an analyst downgraded their outlook for the stock. To be sure, it's been a great run so far -- this stock bottomed out at $1 per share during the market crash earlier this year and is up more than 11 times in value since the absolute bottom. But it gave some back today, with Michaels stock down 7% as of 3 p.m. EST.

So what

Christopher Horvers is an analyst with J.P. Morgan. According to The Fly, Horvers downgraded his rating on Michaels stock from neutral to overweight and lowered his price target from $16 per share to $14 per share. Of course, it's funny the stock should fall, since even $14 per share is still good upside. But it's normal to see a one-day stock move based on its analyst rating rather than its target price.

A rising red arrow breaks near the top, resulting in the tip of the arrow pointing down.

Image source: Getty Images.

One of the interesting trends that emerged during the COVID-19 pandemic was increased activity from small at-home entrepreneurs. More people were crafting things for pleasure and for sale, which benefited Michaels. For example, Michaels' sales in the third quarter of 2020 surged 15% higher from the previous year. Horvers sees this is a temporary benefit that should normalize in coming quarters. 

Now what

Michaels' management believes the consumer behaviors emerging from the coronavirus lockdowns will last far beyond this year. In fact, at its recent Investor Day presentation, the company presented its plan to become a more complete ecosystem targeting these customers, rather than just being a common retail chain. Since Michaels' strategy hinges on this assumption, shareholders hope Horvers doesn't wind up being right in the end.

Jon Quast has no position in any of the stocks mentioned. The Motley Fool recommends The Michaels Companies. The Motley Fool has a disclosure policy.

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