We recently published a list of The 10 best clothing stocks to buy now. In this article, we take a look at how PVH Corp (NYSE:PVH) compares to other apparel stocks.
Trends in the clothing industry
The internet has changed the way people buy clothes. Social media platforms and influencers have popularized “haul culture,” where people order large boxes of inexpensive clothing online and then browse through them. Also known colloquially as the “Shein effect,” people are turning to fast fashion and ordering clothes that offer an element of surprise upon receipt. Although Shein’s main suppliers are based in China, its customers are primarily based in the United States. The company’s global sales reached around $30 billion last year, nearly matching the $39 billion global sales of Inditex, the old-school fast-fashion leader and owner of Zara.
Fashion and apparel are among the world’s most significant industries and create important value for the global economy. According to McKinsey, this would make it the world’s seventh-largest economy when compared to individual country GDPs. However, the industry faced several challenges in 2023, with the United States and Europe experiencing slow regional growth throughout the year. While China began the year with a strong performance, it gradually tapered off and slowed down in the second half. Even the luxury segment saw uneven performance and lower sales. The fashion industry in 2024 can therefore be described in one word: uncertainty. Weaker economic growth, dwindling consumer confidence and rising inflation are making it difficult for companies to develop suitable performance drivers. A Reuters report showed that consumers are becoming more selective in their clothing choices and are shopping more. This has led to a “patchwork of winners and losers.”
Fashion forecasts by McKinsey show that the industry is expected to grow by 2-4% in 2024, with growth varying by country and region. The luxury segment is expected to make the biggest economic gain, but that does not mean that companies in this sector will not experience difficult economic conditions. The global growth forecast for the industry is lower in 2024 compared to 2023, falling to 3-5% from 5-7% in 2023 as shopping sprees come to a halt after the pandemic. Growth in China and Europe is expected to slow, but the US market shows a completely different forecast. Growth in North America is expected to pick up in 2024 after a sluggish 2023, reflecting the region’s more optimistic forecast.
In addition, the current political unrest in Bangladesh is expected to affect the global apparel industry, disrupting the work of global clothing retailers from H&M to Zara. As these apparel giants head into the crucial holiday season, the disruptions could cause heavy losses for U.S. retailers and Bangladesh itself, which is the world’s third-largest apparel exporter as of 2023. Overall, consumer behavior in the U.S. has slowed, with people making do with what they have in their closets before the season changes. The Federal Reserve is also expected to cut interest rates in September. A report from Reuters showed that investors had previously bet that the Fed would cut rates by half a percentage point and now estimate a probability of about 75% for a quarter-percentage point cut at its September meeting. This should boost consumer confidence and ease spending behavior. With that in mind, let’s look at the 10 best apparel stocks to buy.
Our methodology
For this article, we used Finviz’s stock screener to identify over 20 apparel stocks. We then narrowed our list down to the 10 stocks with the most upside potential from current levels and listed the stocks in ascending order of their upside potential (as of August 19). We only selected stocks with a market cap of over $2 billion.
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A customer tries on a sports jacket in the store and presents the company’s range of sportswear.
PVH Corp (NYSE:PVH)
Upside potential from current level: 32.26%
PVH Corp (NYSE:PVH) has international brands such as Tommy Hilfiger, Calvin Klein, Warner’s, Olga and True & Co. in its portfolio. The company also licenses brands such as Michael Kors and Kenneth Cole New York. Its brands are aimed at fashion-conscious audiences, with Calvin Klein focusing on minimalist aesthetics and Tommy Hilfiger embodying classic American style.
The company is expanding its global presence and recently opened its global flagship store on one of the world’s most famous fashion streets: the Champs-Élysées in Paris. PVH Corp’s (NYSE:PVH) Tommy Hilfiger brand has expanded its commitment to consumers, recently partnering with the Mercedes-AMG Petronas Formula One™ Team to launch a limited-edition line. Tommy Hilfiger also announced a multi-year partnership with the United States SailGP Team in June, becoming its Official Lifestyle Apparel Partner and ushering in a new era of combining style and athleticism at Tommy Hilfiger.
The company operates around 700 outlet stores under the Tommy Hilfiger, Calvin Klein and Van Heusen brands. As one of the largest global lifestyle companies, PVH Corp (NYSE:PVH) operates in more than 40 countries with 29,000 employees. The goal is to make Calvin Klein and TOMMY HILFIGER the most desirable lifestyle brands in the world.
FPA Queens Road Small Cap Value Fund stated the following about PVH Corp. (NYSE:PVH) in its first quarter 2024 investor letter:
“PVH Corp. (NYSE:PVH) is an apparel company that owns the Tommy Hilfiger and Calvin Klein brands globally. The majority of PVH’s profits come from Europe, where the Tommy and Calvin brands are considered “almost luxury” and PVH has generally experienced high single-digit organic growth with proven pricing power over the past decade. CEO Stefan Larsson has done an excellent job of reviving the company and improving margins in PVH’s ailing U.S. businesses. Over the past year, PVH and our other apparel businesses have performed well as the worst fears about consumer spending have not materialized. PVH has become one of our top five holdings and our apparel holdings (PVH, GIII, LEVI and DECK) now represent nearly 10% of the portfolio. On April 2, after the quarter ended, PVH announced fiscal 23rd quarter results, which missed earnings guidance for the coming year. The stock is down ~20% from its peak but now trades at less than 10x forward earnings. We have held our position.”
PVH Corp (NYSE:PVH) revenue grew at a compound annual growth rate of 4.63% over the past three years. Analysts estimate that the company’s earnings per share will grow by 6.22% year-over-year through 2025. The stock is widely rated as a Buy by analysts and has growth potential due to positive customer engagement and direct-to-consumer (DTC) sales. The median price target of $103.5 represents an upside of 32.26% from current levels. Currently, the company is trading at a P/E ratio of 9.24, a massive 40.65% discount to its sector. PVH Corp (NYSE:PVH) has 39 hedge funds to choose from as of Q2 2024, with Pzena Investment Management holding the largest stake.
Total PVH 2nd place on our list of the best apparel stocks to buy. While we recognize PVH’s potential as an investment, we believe AI stocks promise higher returns and do so in a shorter time frame. If you’re looking for an AI stock that’s more promising than PVH but trades at less than 5 times its earnings, read our report on the cheapest AI stock.
Read next: Analyst sees a new $25 billion ‘opportunity’ for NVIDIA and Jim Cramer recommends these 10 stocks in June.
Disclosure: None. This article was originally published on Insider Monkey.
