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Bull of the Day: Tilly's (TLYS)

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Momentum stocks—be they trendy internet plays or red-hot small caps—sold off on Tuesday as investors were weary of pushing hot companies into new ranges. However, this does not necessarily change the fundamental picture right now, and one company that dipped—Tilly’s (TLYS - Free Report) —is still worthy of our “Bull of the Day” honors.

Tilly’s is a specialty retailer in the action sports industry selling clothing, shoes, and accessories. The retailer is popular among skateboarders and surfers, as well as trendy young fashion purveyors who love “streetwear” brands. Shopping at Tilly’s would yield everything from legacy apparel makers like The North Face and Adidas to forward-thinking brands such as LRG and Primitive.

Tilly’s has capitalized on the explosion of streetwear and action sports fashion trends and is now poised to see new growth opportunities. This, plus its solid valuation and recent earnings estimate and price performance momentum, make it a Zacks Rank #1 (Strong Buy) stock to watch right now.

Earnings and Outlook

Tilly’s most recently reported earnings on May 30. For the period ending in April 2018, Tilly’s saw earnings of four cents per share, beating the Zacks Consensus Estimate by three cents and improving from a loss of a penny in the year-ago period. Meanwhile, quarterly revenue of $124 million also topped estimates and moved about 2.5% higher year over year.

Investors loved this report, and the stock surged about 25% over the next few trading periods to test new 52-week highs. The stock currently sits right near those highs and could break higher with another solid report.

Tilly’s is expected to report again sometime around August 22. Here’s the latest earnings estimate revision outlook for the company:

As we can see, estimates for the soon-to-be-reported quarter have moved up on universal agreement among revision analysts. The Zacks Consensus Estimate for earnings for the period is now projecting EPS growth of more than 136%. Growth is obviously a great thing to see, and it is even more encouraging to see an earnings outlook that is improving significantly with analysts in strong agreement.

Valuation

As mentioned, Tilly’s has gained about 25% since its earnings report and now sits near its 52-week high. Before this surge, TLYS had most recently traded near these levels in December 2017. However, as we can see below, the valuation picture is much different:

At 18x forward 12-month earnings, TLYS is trading at a slight premium to its industry average. However, the stock is actually cheaper now than it was at this time last year, and given the improving nature of its earnings snapshot, investors should love this price point.

Consider the Trend

As mentioned, Tilly’s is a popular retailer of streetwear clothing, which is a modern fashion trend rooted in West Coast surf and skate culture. This style of clothing is in demand among millennials and Gen Z, who are witnessing important growth in terms of buying power.

Investors need to be able to recognize specific trends because certain retailers are able to capitalize on them more than others. Tilly’s has been selling the surf and skate brands which streetwear has adopted for years, and that means it has emerged as a top destination for brick-and-mortar and online streetwear shopping.

Bottom Line

Specialty retailers are positioned to benefit from growth in what they specialize in, and that’s exactly what Tilly’s has seen recently. Add this to the fact that the stock is seeing strong EPS estimate trends and trades at an attractive valuation, and it is easy to see why investors should have TLYS on their radars right now.

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