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Top 3 retail stocks with above-average returns: AEO, PLAY, ROST

One of the most closely watched economic indicators is the monthly retail sales report. In June 2024, the figures for May were reported. After a negative April, retail sales rose 1.2% month-on-month and 2.88% year-on-year.

So why didn't you hear the popping of champagne corks? There's more to it than that. While these numbers are encouraging, they are not adjusted for inflation, with inflation still hovering around 3.3%.

That means actual retail sales were negative not just in May, but in every month of the past year. The implication is that consumers are closing their wallets to non-essential purchases. And that's what you're hearing from retailers issuing weak forecasts for the stocks of these companies that continue to lag the market.

You may think that this is only a problem for low- to middle-income consumers, but you are wrong. Even premium brands like Lululemon Athletica Inc. NASDAQ: LULU lower their forecasts due to unexpected weakness.

But there are winners in every market, and that's the case with these three retail stocks that are currently beating earnings expectations and continue to offer optimistic forecasts.

AEO: This Emerging Mid-Cap Stock Is Poised for Another Upswing

AEOAEO 90-day performance

American Eagle Outfitters

19,30 €

-0.06 (-0.31%)

(As of 03.07.2024 ET)

52-week range
11,69 €

$26.44

Dividend yield
2.59%

P/E
17.39

Target price
25,00 €

American Eagle Outfitters Inc. NYSE: AEO is a specialty retailer that sells its American Eagle and Aerie brands and offers lingerie and lifestyle apparel lines. At a time when many retailers are struggling to report higher comparable-store sales, American Eagle is holding its own. In the company's first quarter, Aerie's sales grew 7% year-over-year and American Eagle's retail stores saw an 8% year-over-year increase.

Despite the positive numbers, AEO stock has fallen over 10% since the report. However, with AEO stock up 58% over the past 12 months, this looks like a healthy decline that could set the stage for further advancement.

A key to that will be seeing if the company can maintain its margins at Aerie, which tends to have a higher price tag. American Eagle analyst forecasts on MarketBeat give AEO stock a consensus rating of Hold, but with a price target of $25, representing 29.5% upside potential from the stock's July 3, 2024 closing price.

Investors have the opportunity to buy an undervalued PLAY share

Dave & Buster's Entertainment Inc. stock logo
PLAYPLAY 90-day performance

Dave & Busters Entertainment

37,98 €

-0.12 (-0.31%)

(As of 03.07.2024 ET)

52-week range
$33.07

$69.82

P/E
16.16

Target price
$65.71

In many cases, investors sell the news on earnings reports. It may be considered better to sell first and think again later. This seems to be the situation with Dave & Buster’s Entertainment Inc. NASDAQ: PLAY. The headlines in the company's earnings report were bad. And PLAY stock has fallen over 20% since the report. However, as Thomas Hughes wrote for MarketBeat, Dave & Buster's Entertainment is in the midst of implementing a growth strategy that includes opening new stores and expanding internationally.

To be fair, this wasn't the first quarter that Dave & Buster's missed analysts' expectations for revenue and earnings. In fact, it was the fifth consecutive quarter that the company missed expectations.

This is where the opportunity lies. Sales and profits are down year-on-year compared to the past five years, but are still significantly higher than the past five years. However, PLAY's share price is roughly where it was five years ago. This suggests that investors have oversold the stock. At least that's what the analysts believe. They rate the stock with a moderate buy rating and a price target of $65.71, which represents a gain of over 70%.

ROST: Will all good things come in threes for this retailer's stock?

Ross Stores, Inc. stock logo
144,00 €

-0.40 (-0.28%)

(As of 03.07.2024 ET)

52-week range
$107.30

$151.12

Dividend yield
1.02%

P/E
24.28

Target price
$159.06

As inflation continues to impact consumers, many investors are examining sentiment at discounters such as Dollar-General Co. NYSE: DGYou may be better advised to contact a company like Ross Stores Inc. NASDAQ: RUST.

First, the company has a loyal customer base that visits the company as a place where they can buy “clothes for less,” meaning they can get branded items at deep discounts. This is reflected in revenue and profit, which are up year-on-year and continue to beat analysts’ expectations.

Just as consumers love to buy items on sale, investors love stocks that show increasing margins and cash flow. Although ROST stock is up 29.5% over the past 12 months, it has encountered resistance at around $150 twice.

If the company can continue to beat earnings expectations while the Federal Reserve pursues a looser monetary policy, ROST stock could have a third time around.

Before you consider Lululemon Athletica, here’s what you should hear.

MarketBeat tracks Wall Street's highest-rated and best-performing research analysts and the stocks they recommend to their clients every day. MarketBeat has identified the five stocks that top analysts are secretly telling their clients to buy before the broader market catches on… and Lululemon Athletica wasn't on the list.

While Lululemon Athletica is currently rated a Moderate Buy by analysts, the top-rated analysts believe these five stocks are better buys.

Check out the five stocks here

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