What happened

Shares of Express (NYSE:EXPR) were falling Tuesday, though there was no fresh news out regarding the company. Instead, the mall-based apparel retailer was one of several "Reddit stocks" that were pulling back from their Monday gains.

As of 2:08 p.m. EDT, the stock was down 8.4%.

An Express ad with three women walking down the street

Image source: Express.

So what

On Monday, prices rose for a number of stocks that have drawn attention from participants in the WallStreetBets subreddit, among them GameStop (NYSE:GME) and AMC Entertainment. On Tuesday, the momentum seemed to reverse, though there was no clear reason why.

GameStop, the video game retailer that has been the most popular stock in the group, has gone on a second surge in recent weeks, driven by optimism about the company's planned pivot to e-commerce, which will be led by Chewy co-founder Ryan Cohen. Those gains have generated tailwinds for other Reddit stocks, among them Express. Though the two companies have little in common, Express has attracted the interest of Reddit traders as a penny stock with an easy-to-understand recovery thesis. Even after Tuesday's pullback, Express stock is up 71% just this month.

Fundamentally, though, Express's business remains deeply challenged by the pandemic. According to the earnings report  the apparel retailer delivered last week, in its fiscal fourth quarter, its comparable sales declined 27% en route to an adjusted per-share loss of $0.66 -- and Q4 is normally its strongest time of year. Express also finished the fiscal year (which ended Jan. 30) with a cash flow loss of $340 million.

Now what

Despite the weak fourth-quarter report, the stock actually jumped when the news arrived due to a reassuring 2021 outlook. Management forecast that the company will deliver positive free cash flow this year and called for positive EBITDA for the second half. With vaccines rolling out, things will certainly get better for apparel retailers like Express, but the mall ecosystem in which it operates was already declining before the pandemic, and malls are in even rougher shape now. 

Express shares are now trading roughly evenly with their pre-pandemic price. That seems to indicate that much of the anticipated recovery for the business is already priced in.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.