The U.S. economy has been recovering from the ravages of the COVID-19 pandemic at a faster-than-expected pace, supported by multiple fiscal stimulus packages and the Fed’s continued dovish monetary policy stance. According to the Bureau of Economic Analysis (BEA), the country’s real GDP increased at…
a 6.4% annual rate in the first quarter ended March 31.
According to CNBC/Moody’s Analytics Rapid Update of economists’ forecasts, median GDP growth expected for the second quarter is 9.3%.Consequently, investors have been rotating into cyclical stocks that are well positioned to thrive in an economic recovery. Given surging inflation and rising benchmark Treasury yields, popular Reddit community wallstreetbets has also been focusing on cyclical stocks.
Given this backdrop, we expect WSB favorites Academy Sports and Outdoors, Inc. (ASO – Get Rating) and Ethan Allen Interiors Inc. (ETH – Get Rating) to deliver robust returns in the near term.
Academy Sports and Outdoors, Inc. (ASO – Get Rating)
ASO manufactures and sells outdoor recreational products and sporting goods across the country. The company has an established supply chain in the Southern states, through retail shops and distribution centers, as well as an e-commerce platform. ASO went public on October 2, 2020 through an initial public offering of 15.63 million shares priced at $13. Owned by the private equity firm KKR & Co. Inc., ASO had a pre-market valuation of $1.10 billion.
According to WSB, the stock is “criminally undervalued.” The community believes the company has significant untapped potential. Driven by rising interest from retail investors, ASO’s shares have gained 156.4% since their stock market debut, and 60.6% year-to-date.
ASO’s strategically timed market debut and multiple secondary offerings have allowed it to generate substantial capital for its operations amid the fast-paced economic recovery. The company raised approximately $400 million in January to refinance its debt at lower rates, thereby augmenting its earnings potential. ASO had administered two non-dilutive secondary offerings since its public debut, which improved the stock’s liquidity. Furthermore, the company bought back nearly 3.23 million shares from underwriters during its second secondary offering earlier this month. This is expected to increase ASO’s earnings per share in the coming quarters.
Analysts expect ASO’s EPS to rise 8.1% year-over-year to $3.48 next year, and at a 23.1% rate per annum over the next five years. The company surpassed consensus EPS estimates in the last two quarters. ASO’s revenue is expected to rise 3.3% from the same period last year to $5.88 billion in the current year, and by 1.1% year-over-year to $5.94 billion next year.
It’s no surprise that ASO has an overall B rating, which equates to Buy in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with the weighting of each optimized to improve overall performance.
The stock has an A grade for Momentum, and B for Growth and Value. Of the 34 stocks in the A-rated Athletics & Recreation industry, ASO is ranked #12.
Beyond what we’ve stated above, one can check out additional ASO Ratings for Sentiment, Stability and Quality here.
Ethan Allen Interiors Inc. (ETH – Get Rating)
ETH sells interior design products and home furnishings in North America, Asia, Europe and Middle East. The company’s operations can be categorized in two segments: wholesale and retail. It also maintains an online presence through the ethanallen.com website. ETH has an ISS Governance QualityScore of 1 (as of April 30), indicating minimal governance risk. The housing market and…
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