Foot Locker (FL) certainly isn’t the sexiest stock, yet it has jumped from $27 to $46 in less than six months. Granted, it is now possible to purchase footwear and other sports-related apparel on the internet, yet most consumers still prefer to try on a new pair of kicks and take a few steps in-store before plunking down their hard-earned money.
In other words, retail is not dead. The likes of FL that provide consumers with the opportunity to try on sneakers and view other sundries in-person have the potential to do much more than merely survive the years ahead. It is quite possible FL may even thrive in 2021 and beyond. Let’s take a look at what the new year might be like for FL.
Though most people genuinely enjoy shopping at FL stores as they are well-organized, clean, and easy to navigate, some prefer to shop online. FL provides direct-to-consumer shipping at no cost as long as the order is $50 or greater. There is also the option of buying online and picking up items at a local store.
FL even has a widely lauded mobile app that empowers customers to shop on-the-go. In short, FL has made it easy to buy sneakers and other gear, both online and offline. This flexibility is proving particularly important during the pandemic as that many more people have remained at home in an attempt to avoid contracting coronavirus.
FL by the Numbers
FL was trading around $42 before the pandemic. Due to the spread of the virus, the stock fell off a cliff, bounced back in June, plateaued, and spiked right back to life once again in the fall. FL has steadily ascended from September, moving from $30 up to $45.
FL has a forward P/E ratio of 17.22, meaning there is an argument to be made that it is slightly undervalued even though the stock is only pennies away from its 52-week high of $46.02. However, it must be noted that analysts are somewhat bearish on FL, setting an average price target of $43.80, indicating a potential 4% to 5% downside. Of the 17 analysts who cover the stock, 10 recommend it as a “Buy,” six recommend holding, and one advises selling.
Reasons for Optimism
FL has benefitted from Nike’s (NKE) latest launches that have proven quite popular with everyday people and “sneakerheads” who frequent FL stores with regularity. Add in the fact that people are spending more time walking, running, and hiking during social distancing, and there is even more reason for FL investors to feel good about the company. FL’s quarterly sales are up 19%. Furthermore, FL inventory levels have declined 3% while sales are up, meaning there is considerable consumer demand.
As long as FL stores remain open in the months ahead and the economy returns to at least a semblance of normal, FL could maintain its upward momentum. However, it is important to point out that there is a pent-up demand for footwear and most other consumer products aside from the essentials. Once a coronavirus vaccine is released to the masses, FL could enjoy a meaningful uptick in consumer traffic. Add in the fact that high school and intramural sports will resume across the board, and the company’s sales could skyrocket in 2021.
Predicting the future of FL is not easy. Though Generation X, millennials, and some Zoomers have FL brand loyalty, there are countless other options for purchasing sneakers and the rest of the gear FL offers. However, what matters most is whether FL has a grip on the consumers of the future. The Cowen Consumer Tracker Survey reveals consumers between the ages of 18 and 34 prefer FL over competing retailers.
If you still aren’t convinced FL is worthy of your investing dollars, consider the POWR Ratings. The stock has an “A” grade in the Trade Grade, Industry Rank, and Buy & Hold Grade components, along with a “B” grade in the Peer Grade component. FL is ranked 7th of 36 stocks in the Athletics & Recreation industry. Add in the fact that FL has a three-year price return of 5.90% and a six-month price return of 58.19%, and there is even more reason to be bullish.
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FL shares were trading at $46.29 per share on Tuesday morning, down $0.15 (-0.32%). Year-to-date, FL has gained 14.47%, versus a 1.08% rise in the benchmark S&P 500 index during the same period.
About the Author: Patrick Ryan
Patrick Ryan has more than a dozen years of investing experience with a focus on information technology, consumer and entertainment sectors. In addition to working for StockNews, Patrick has also written for Wealth Authority and Fallon Wealth Management. More…
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