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Aritzia (TSX:ATZ) has been one of the worst-performing TSX Composite components this year so far. As of October 11, ATZ stock trades at $24.47 per share with a $2.7 billion market cap after witnessing 48.3% value erosion in 2023. In comparison, the main TSX index is up 1.4% year to date.
If you’re wondering what has taken a toll on Aritzia stock lately, let’s quickly review its financial growth trends and fundamental outlook to figure that out.
What’s affecting Aritzia’s stock price movement in 2023
Aritzia is a Vancouver-based vertically integrated design house with a rich experience of nearly four decades in the domain. It currently focuses primarily on selling everyday luxury clothing through its online store and network of boutiques in its home market and the United States. At the end of August 2023, the company had a large network of 116 boutiques, up from 112 boutiques a year ago.
ATZ stock started the year 2023 with minor optimism as its share prices rose slightly by 1.4% in January. However, it witnessed heavy losses in the next month as the possibility of aggressive interest rate hikes amid inflationary pressures made investors flee risky growth stocks.
Besides February, Aritzia stock witnessed big double-digit losses in another two months of 2023. The stock tanked by 19.3% in May and dived by another 31.8% in July. It’s important to note that the company released its February quarter and May quarter earnings reports in May and July, respectively.
Looking at its big stock losses in these two months, you may think there must have been something awfully wrong with Aritzia’s February and May quarter financial results, which triggered a selloff in ATZ stock. However, that’s not the case. In fact, the company’s adjusted earnings jumped by a solid 17.7% YoY (year over year) in the February quarter with the help of 43.5% growth in its sales. Similarly, it posted adjusted earnings of $0.10 per share in the May quarter, again beating Bay Street analysts’ top- and bottom-line estimates.
Considering these upbeat financial results, macroeconomic factors and broader market uncertainties could be largely blamed for ATZ stock’s big year-to-date losses.
Where will Aritzia stock be in five years?
Investors fear that persistent high inflation and a grim consumer spending environment could badly affect Aritzia’s financial growth, leading to a recent weakness in its share prices. Nonetheless, we shouldn’t forget the fact that these macroeconomic challenges are temporary and might not have a major impact on the company’s financial growth in the long run.
In recent years, Aritzia has significantly expanded its presence in the United States, where its active client base figures have roughly doubled in the last two years. Despite slowing economic growth, a consistent double-digit YoY growth in its e-commerce sales also reflects strong demand for its products.
As Aritzia is managing to post positive sales growth, even amid the ongoing macroeconomic challenges, I expect its financial growth trends to massively improve as soon as the consumer spending environment improves in the coming years.
Even after including this year’s big losses, ATZ stock has risen 38% in the last five years. While it’s nearly impossible to predict where its share prices will trade five years from now, its strong fundamental outlook, as discussed above, makes it look undervalued. That’s why Aritzia stock can see a spectacular rally as soon as the macroeconomic environment improves, I believe.