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Why The Michaels Companies Stock Rocketed 31% in December

By Reuben Gregg Brewer – Jan 5, 2021 at 10:49AM

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Third-quarter earnings results had investors cheering.

What happened

Shares of arts and crafts retailer The Michaels Companies (MIK) rose just over 31% in December, according to data from S&P Global Market Intelligence. That price advance came mostly during the first few days of the month, after Michaels held its third-quarter earnings call on Dec. 3.

So what

Michaels had a pretty good quarter and investors quickly rewarded it. On the top line, comparable-store sales increased a huge 16.3% year over year. That follows a 12% advance in Q2. Online sales were an important contributor to this performance, up an astounding 353% in the second quarter and 128% in the third. Q3 profits were especially robust, with adjusted earnings more than doubling to $0.84 from $0.40 per share in the year-earlier period. That was even better than the roughly 60% adjusted earnings growth the company posted in the second quarter.  

Rising orange and blue stock chart

Image source: Getty Images.

Following the earnings-driven advance, Michaels stock trended a bit lower before moving higher again to close out the year. That's likely at least partly attributable to the fact that coronavirus cases are on the rise again. After proving it can successfully provide customers with arts and crafts supplies via its online channel, Michaels appears to be an inadvertent beneficiary of the COVID-19 pandemic. Investors seem to think that if people are again forced to stay home, they will need something to do (to entertain themselves and/or their kids), and Michaels can provide that something. 

Now what

December capped what was a pretty amazing year for Michaels stock. At one point during the coronavirus-led bear market it was down more than 80%. However, strong operating results led to it ending the year up a hefty 60%. That level of volatility should probably keep conservative long-term investors on the sidelines. After that run, even more aggressive investors might want to tread with caution here -- a lot of good news has been priced into the stock in a very short period of time.  

Reuben Gregg Brewer 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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