Retailers are overhauling their operations as technology redefines the shopping experience. Digitization has been one of the keys to staying competitive against e-commerce rivals, a move that has enabled the industry to grow same-store sales. Consequently, retail stocks have climbed 18.1% over the past six months, beating the S&P 500 by 4.5 percentage points.
Although these companies have produced results lately, investors must be mindful as many companies in this space face structural headwinds. Keeping that in mind, here is one resilient consumer stock at the top of our shopping list and two best left ignored.
Two Consumer Retail Stocks to Sell:
Home Depot (HD)
Market Cap: $349.6 billion
Founded and headquartered in Atlanta, Georgia, Home Depot (NYSE: HD) is a home improvement retailer that sells everything from tools to building materials to appliances.
Why Are We Hesitant About HD?
- Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
- Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 33.4%
- Earnings per share fell by 3.3% annually over the last three years while its revenue grew, showing its incremental sales were much less profitable
Home Depot’s stock price of $351.89 implies a valuation ratio of 23.1x forward P/E. Read our free research report to see why you should think twice about including HD in your portfolio.
American Eagle (AEO)
Market Cap: $4.10 billion
With a heavy focus on denim, American Eagle Outfitters (NYSE: AEO) is a specialty retailer offering an assortment of apparel and accessories to young adults.
Why Does AEO Give Us Pause?
- Annual revenue growth of 2.2% over the last three years was below our standards for the consumer retail sector
- Slow expansion of stores indicates a strategic shift toward maximizing returns from existing locations
- ROIC of 9% reflects management’s challenges in identifying attractive investment opportunities, and its shrinking returns suggest its past profit sources are losing steam
American Eagle is trading at $24.15 per share, or 15.1x forward P/E. Dive into our free research report to see why there are better opportunities than AEO.
One Consumer Retail Stock to Watch:
Ulta (ULTA)
Market Cap: $26.65 billion
Offering high-end prestige brands as well as lower-priced, mass-market ones, Ulta Beauty (NASDAQ: ULTA) is an American retailer that sells makeup, skincare, haircare, and fragrance products.
Why Are We Fans of ULTA?
- Store expansion strategy is justified by its healthy same-store sales
- Brick-and-mortar locations are witnessing elevated demand as their same-store sales growth averaged 2.6% over the past two years
- Stellar returns on capital showcase management’s ability to surface highly profitable business ventures
At $600.22 per share, Ulta trades at 22.2x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.
Stocks We Like Even More
Your portfolio can’t afford to be based on yesterday’s story. The risk in a handful of heavily crowded stocks is rising daily.
The names generating the next wave of massive growth are right here in our Top 9 Market-Beating Stocks. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).
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