The retail sector has faced multiple challenges in the current year. Some of the headwinds include inflation, supply chain disruptions, and macroeconomic concerns. Additionally, tight monetary policies have impacted consumer spending trends to some extent. Amidst these headwinds, the valuation of some of the best retail stocks looks attractive.
I believe that the next year is likely to be better on a relative basis. It’s true that global slowdown concerns are significant. However, there is a strong case for multiple rate cuts to boost investment and consumption spending. Therefore, attractively valued retail stocks are likely to trend higher in the coming quarters.
When I am talking about 100% returns during the year, it’s unlikely for blue-chip retail stocks like Walmart (NYSE:WMT) and Costco Wholesale (NASDAQ:COST), among others. However, there are relatively smaller names that can surge higher.
Also, since most companies are pursuing omnichannel sales, I am looking at traditional retailers as well as e-commerce stocks. Let’s discuss three names that are likely to surge next year.
Miniso Group (MNSO)
Miniso Group (NYSE:MNSO) stock has delivered returns of almost 100% for year-to-date. I expect MNSO stock to double again from current levels in the next year. It’s worth noting that even after a meaningful rally, the stock trades at a forward price-earnings ratio of 23. A dividend yield of roughly 2% is also attractive and among the reasons to be bullish on the stock.
From a growth perspective, Miniso is among the best retail stocks to buy. For Q1 2024, the Company reported revenue growth of 36.7% on a year-on-year basis to $519.6 million. For the same period, adjusted EBITDA increased by 52.8% on a year-on-year basis to $139 million. Therefore, growth has been associated with healthy EBITDA margin expansion.
As of Q1 2024, Miniso reported a total of 6,115 lifestyle stores. The number of stores increased by 819 over the past year. At this pace and with an asset-light model, I expect robust growth to be sustained. This will support MNSO stock upside coupled with healthy dividend growth.
Coupang (CPNG)
I would include online retail or e-commerce stocks in the list of names that I am bullish for in 2024. Coupang(NYSE:CPNG) stock looks deeply undervalued after remaining sideways for year-to-date. Even with the recent Q3 earnings miss, I believe that CPNG stock has a meaningful upside.
My view is underscored by the fact that 15 analysts offering a 12-month forward price forecast for CPNG stock have a median price target of $21. This would imply an upside of 38% from current levels. However, the most bullish analyst has a price target of $30. That would imply an upside of almost 100%.
For Q3 2023, Coupang reported revenue growth of 21% on a year-on-year basis to $6.2 billion. For the same period, the adjusted EBITDA margin was at 3.9%. Further, Coupang reported a 14% year-on-year growth in active customers to 20 million. As average revenue per user swells, there is visibility for revenue growth.
It’s worth noting that Coupang has reported operating and free cash flow of $2.6 billion and $1.9 billion for the trailing twelve months. I expect margin expansion and cash flow upside to sustain on the back of operating leverage.
Sea Limited (SE)
Sea Limited (NYSE:SE) stock has continued to remain in a downtrend. However, I believe that SE stock is attractive at the current level of $39 per share. It’s worth noting that Sea Limited is diversified across digital gaming, e-commerce, and digital financial services. However, the e-commerce segment can be a potential cash flow machine in the coming years.
The first reason to be bullish on Sea Limited is exposure to high-growth markets of Southeast Asia, Latin America, and other emerging Asian countries. I expect stellar growth on the back of low e-commerce penetration in these markets.
Specific to the retail e-commerce sector, Sea reported revenue of $2.2 billion for Q3 2023. On a year-on-year basis, revenue increased by 16%. However, EBITDA level losses have been sustained and that’s a potential concern.
I believe that Sea Limited is positioned to narrow its EBITDA losses in the coming quarters. Operating leverage coupled with lower inflationary pressure is likely to support margins. At the same time, Sea Limited has a healthy cash buffer of $7.9 billion. This is likely to help in supporting aggressive investments for growth.
On the date of publication, Faisal Humayun did not hold (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
