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Quarter-End Insights

Consumer Cyclical: Market Underestimating Apparel and E-Commerce

Structural trends across apparel retail, e-commerce, and travel are being mispriced by the market.

R.J. Hottovy
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  • The consumer cyclical companies under our coverage trade at a median price/fair value ratio of 0.93, and we believe the market is underestimating longer-term revenue growth and margin expansion opportunities from this group.
  • We think we are at a low point in the apparel retail cycle and see future upside. We do not believe brick-and-mortar apparel retailing is dead, but rather think it will look significantly different in the future as retailers convert to modern responsive supply chains and the athleisure fashion trend winds down.
  • We believe the market is overlooking the powerful network effect that many of the leading e-commerce companies have developed over the past several years, not to mention a host of other leading players in more nascent e-commerce markets that are successfully bridging the transition to a business-to-consumer from consumer-to-consumer marketplace through enhanced payment, financing, logistics, and branded store offering.
  • We see the increased home-share laws as a small positive for hotels and as largely neutral for online travel agencies.

 

R.J. Hottovy does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.