DXLG (DXLG) is a specialty retailer of big and tall men’s clothing and shoes in the United States and Canada. Its stores offer athletic apparel and dress clothes, in addition to formalwear, for purchase or rental. It sells its products in its locations and through other retailers.
The stock is setting up to be one of the best performers in 2022, due to its attractive valuation, earnings growth, and increasing total addressable market (TAM). Consumer spending is also expected to remain strong next year due to strong growth, household balance sheets in great shape, wage appreciation, and a falling unemployment rate.
Not to mention that there continues to be a tailwind in categories like apparel sales and in-store shopping due to pent-up demand from the pandemic. Read on to find out why DXLG is one of my top picks for 2022.
Expanding Market
One major development over the past couple of decades is the rising rates of obesity in many parts of the world. As of 2019, about 40% of adults and 20% of children were considered obese.
While this poses a significant public health challenge, it does present an opportunity for DXLG which is the leading retailer of clothing for “big and tall” men. Thus, the company is likely to benefit from organic growth and also have the opportunity to expand into new markets.
Growth Story
The pandemic was a brutal period for retailers, but we are now clearly on the other side. Further, the environment has significantly improved for retailers as the labor market is healing, wages are above pre-pandemic levels, and consumer spending keeps trending higher. There is also pent-up demand for people to resume shopping in stores and for categories like office wear, formal attire, and travel gear.
Thus, it’s not surprising that DXLG has been crushing its recent earnings reports. In Q3 2020, the company beat estimates on the top and bottom line. Revenue was 42% higher than last year. More impressively, it was up 23% from 2019. Net income was $13.7 million, a significant improvement from last year’s $7 million loss.
DXLG’s strong performance in Q3 2020 was even more notable considering that the company was dealing with a potent headwind due to shipping delays and increased transportation costs. Many retailers missed estimates as these factors led to companies having depleted inventories and longer turnover times, leading to revenue misses. However, we are seeing real-time economic data showing that the backup at ports is starting to decline as it’s worked through. Thus, it’s reasonable to expect more margin expansion in the coming quarters.
Valuation
Despite this earnings growth, DXLG remains reasonably valued with a forward P/E of 10 which is less than half of the S&P 500. Since mid-November, DXLG’s stock price is down by nearly 40% with the major factor being concerns that the omicron strain could derail the recovery in retail stocks and lead to another round of shutdowns.
While cases continue to skyrocket at a meteoric pace, all evidence seems to suggest that the new strain is much milder than previous ones. So, it’s unlikely to have a material effect on retail sales or the company’s supply chains.
POWR Ratings
DXLG is also a standout in the POWR Ratings with an overall A rating which translates to a Strong Buy. A-rated stocks have delivered an annual performance of 30.7% which outpaces the S&P 500’s average annual gain of 7.1%.
The stock also has strong component grades across the board including an A for Growth and a B for Value. Not surprisingly, Wall Street is also bullish on the stock with a consensus price target of $11 which implies 98% upside from current levels.
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DXLG shares were trading at $5.68 per share on Thursday morning, up $0.11 (+1.97%). Year-to-date, DXLG has gained 2,018.61%, versus a 29.61% rise in the benchmark S&P 500 index during the same period.
About the Author: Jaimini Desai
Jaimini Desai has been a financial writer and reporter for nearly a decade. His goal is to help readers identify risks and opportunities in the markets. He is the Chief Growth Strategist for StockNews.com and the editor of the POWR Growth and POWR Stocks Under $10 newsletters. Learn more about Jaimini’s background, along with links to his most recent articles.
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