What happened
Shares of Children's Place (PLCE 3.50%), the leading specialty children's apparel retailer, were moving higher last month on a combination of factors. These included layoffs and cost-cutting measures announced at the end of June, signs that the broader economy was recovering, and a big insider stock buy by CEO Jane Elfers.
According to data from S&P Global Market Intelligence, the stock finished July up 35%.
As you can see from the chart below, the stock climbed steadily over the course of the month after popping on July 6 when Elfers bought stock in the company.
So what
Children's Place closed out June by saying it reduced its salaried workforce by 17%, or 181 positions, and would also terminate its corporate office lease in order to cut costs and drive profitability.
The stock's best day of July came on July 6 when the stock rallied 10% on high-volume trading after revealing that Elfers bought the stock.
Elfers purchased 43,00 shares, or more than $1 million in company stock, upping her stake by about 13%. It was also her first purchase since 2019. Most investors believe that there's only one reason insiders buy their company stock: because they think it's going to go up.
It's unclear if there was any more specific reason for Elfers to buy the stock, though there's a good argument that the stock is undervalued after a long swoon over the last two years. Regardless, it's generally positive when a CEO buys stock, as they are the person that knows the company best and they're the one in charge of its direction.
There was little news out on Children's Place over the rest of the month as a lower-than-expected inflation reading offered encouraging news for Children's Place and the rest of the retail sector. Earnings season generally began with solid results, showing that the economy seemed to be rebounding from a slowdown.
Now what
After a boom during the pandemic, the company's performance has been disappointing more recently as much of the apparel sector has struggled as consumers shifted spending from goods to services.
Still, Children's Place has shown the ability to deliver strong profits in the past, and it should be able to do so again. Additionally, Children's Place continues to rationalize its store base and shift its business to its online channel, which should drive improving margins over the long term. At its current price, the stock offers significant upside potential, especially if the economy continues to improve.
