Nordstrom Stock is a purchase that screams at its new multi-year low – The Fool Motley



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Actions of Nordstrom (NYSE: JWN) It's well behaved for a good part of 2018, with the upscale retailer being rewarded for having invested a lot in improving its business. However, the sales trend began to slow down in the second half of the year, especially in Nordstrom's full-range stores, forcing Nordstrom's stock to drop all of its gains, even some.

Nordstrom shares continued to fall in 2019, due to a pair of poor results. On Wednesday, the stock hit a new multi-year low close to $ 30, a level it has not reached for nearly 10 years. This represents a drop of more than 50% from the peaks reached last fall.

JWN Chart

Nordstrom Stock Performance, YCharts data.

However, investors overreact to relatively small, mostly self-inflicted errors. Nordstrom's sales and earnings are expected to return to growth in the second half of 2019, leading to a rebound in Nordstrom's shares.

Nordstrom Rack is still a solid franchise

One of the reasons why investors are wrong to associate Nordstrom with other department store chain stores is that the company has a strong non-price chain. While department store stocks have been shattered this year, shares of non-price retailers like Ross Stores (NASDAQ: ROST) have reached new heights all the time. Shares in Ross Stores are currently changing hands for more than $ 100, or about 23 times the company's projected earnings per share for 2019.

Nordstrom does not achieve profitability by sector of activity, but it reports revenue for the non-price activity of Nordstrom Rack. Last year, non-price sales reached $ 5.2 billion, an increase of 3.5% in full-year terms. That was just a little less than the 4% increase in Ross Stores' sales for the 2018 fiscal year.

To be fair, Nordstrom's non-price business experienced a pothole in the last quarter, as sales fell 0.6% from one year to the next. However, a bad quarter – after three consecutive quarters in which hardware sales have increased by at least 4% – is not a concern. With better execution, Nordstrom should be able to grow this division in a quarter or two. (Ross's performance was not perfect, either.)

Outside a Nordstrom Rack Store.

Nordstrom Rack has seen strong growth during the fiscal year 2018. Image Source: Nordstrom.

Ross Stores stores about 2.5 times sales. Even though the Nordstrom Rack business figure only accounts for one time turnover, the value of the division would rise to more than $ 5 billion, due to 39, slower growth and certainly lower profit margins. Still, the recent fall of Nordstrom Stock has left the company's total market capitalization at just $ 4.7 billion.

Trade at full price is not dead either

As a result, Nordstrom shares are currently trading for less than the probable value of its non-price division. Nordstrom's full-price activities are also underestimated.

Last quarter, full price sales fell 5.1% from one year to the next. However, full-price comparable sales increased slightly over fiscal year 2018, as growth in Nordstrom's leading ecommerce business more than offset the decline in in-store sales.

Nordstrom is closing at least seven underperforming stores this year, while opening two new ones, including a flagship site in Manhattan. By upgrading its store base and opening its first full-range store in the massive Manhattan market, Nordstrom should be able to ensure that sales and online sales increase again in the coming quarters.

In addition, Nordstrom owns or rents full – service stores in dozens of very attractive locations. The real estate value of its comprehensive portfolio of online stores is likely to be worth billions of dollars, which is a reinforcement for investors in the event of a downturn.


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A great asset for investors

Nordstrom shares currently trade only nine times more than the average earnings per share estimate of analysts for the 2019 financial year. In addition, earnings per share could increase in the next few years, the effect of the opening of stores in Manhattan, the maturation of other investments for growth and cost reduction initiatives and an aggressive share repurchase program.

With such a modest valuation of Nordstrom, it would not take much growth for the stock to fly higher. In addition, the company has a good revenue balance between full-line stores, full-line e-commerce and non-price retail, providing many opportunities for growth.

Nordstrom's stock fell from $ 65 to about $ 30 in less than a year. If the company manages to get Nordstrom Rack back on track and use Manhattan's flagship openness to grow its online business, equities could return to $ 65 before too long.

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