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Beyond Amazon: 5 Retail Stocks with Great Growth Prospects

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The retail landscape has been undergoing a fundamental change, with technology playing a major role and the focus shifting to online shopping. Amazon.com Inc. (AMZN - Free Report) has been in the spotlight for the last few years, as changing customer patterns made the retail industry more dependent on e-commerce. The company is one of the largest online retailers in the world. Product selection, a superior user experience, bargains and customer feedback have helped it to build a strong position in the fast-growing e-commerce market.

Aptly, shares of Amazon have exhibited a bullish run in the last two years. In the said time frame, the stock has gained a significant 123.5%, significantly outperforming the Zacks categorized Electronic Commerce industry’s growth of 45.2%. Moreover, year-to-date, the stock has advanced 15.4%, while the industry gained 12.8%.

Presently, Amazon is the most sought after online retailer as it provides small players as well as big brands a platform to increase sales of their products without having to invest heavily in technology and fulfillment centers. Additionally, the company’s retail business is very hard to beat on price, choice, convenience, you name it. It also has a solid loyalty system in Prime and its FBA strategy.

However, the company’s heavy investments in fulfillment centers, TV shows and movies, Amazon Web Services and India expansion may weigh on margins. Further, the saturation of Prime in the U.S. and currency headwinds due to international operations are likely to be deterrents.

Additionally, competition in online retail is heating up. Traditional retailers have always provided the strongest competition and the majority of them are running websites as well. The increased use of Internet in both developed and developing economies is attracting other players to the space. In China, Amazon has to contend with not only Alibaba Group Holding Limited (BABA - Free Report) , but also a growing number of other home-grown players.

Consequently, Amazon currently holds a Zacks Rank #3 (Hold). Further, the stock does not seem fit for Value investors given its Style Score of ‘D.’ Considering the price-to-earnings (P/E) ratio, Amazon looks pretty overvalued when compared with the industry as well as the S&P 500. The stock has a trailing 12-month P/E ratio of 172.31, which is still below its median level of 189.23 and the high level of 482.81 scaled in the past one year. On the contrary, the trailing 12-month P/E ratio for the industry and the S&P 500 is 60.12 and 20.43, respectively.

Looking Beyond Amazon

If you are looking beyond Amazon for the time being, you can shift your focus on some better-ranked retail stocks with tremendous growth prospects.   

We have identified five Retail-Wholesale stocks based on a favorable combination of a Zacks Rank #1 (Strong Buy) or #2 (Buy) and a Growth Style Score of “A”. These stocks are backed by sound fundamentals, surging share price and a track record of better-than-expected results. Not only this, these stocks have outperformed their respective industries.

We suggest investing in Pier 1 Imports, Inc. , with a long-term earnings growth rate of 10% and a Growth Score of “A.” In the past six months, the stock has surged roughly 83.1% and outperformed the Zacks categorized Retail-Home Furnishings industry, which declined 14.8%. This retailer of decorative accessories, furniture, candles, housewares, gifts and seasonal products delivered an average positive earnings surprise of 23.2% over the trailing four quarters and flaunts a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Investors can count on Rush Enterprises, Inc. (RUSHA - Free Report) , an integrated retailer of commercial vehicles and related services with a long-term earnings growth rate of 15%. The company posted an average positive earnings surprise of 12.8% over the trailing four quarters and has a Growth Score of “A.” In the past six months, this Zacks Rank #1 stock exhibited a bullish run and surged 53.5%, while the Zacks categorized Retail/Wholesale Auto/Truck industry climbed 12.1%.

The Children's Place, Inc. (PLCE - Free Report) , a specialty retailer of children's apparel, is a solid bet, with a Zacks Rank #2 and a Growth Score of “A.” The company posted an average positive earnings surprise of 36.3% in the trailing four quarters and has a long-term earnings growth rate of 10.3%. The stock has surged 25.3% in the past six months and comfortably outperformed the Zacks categorized Retail-Apparel/Shoe industry, which fell 11.6%.

Another stock worth considering is Best Buy Co., Inc. (BBY - Free Report) , which has a long-term earnings growth rate of 10.5% and a Growth Score of “A.” This retailer of technology products, services, and solutions delivered an average positive earnings surprise of 27.7% in the trailing four quarters and carries a Zacks Rank #2. We note that in the past six months, the stock has advanced approximately 20.8%, while the Zacks categorized Retail-Consumer Electronic industry has gained 12.5%.

You may also safely bet on Kate Spade & Company , a designer and marketer of apparel and accessories. The stock carries a Zacks Rank #2 and has a Growth Score of “A.” The company posted an average positive earnings surprise of 14.6% in the trailing four quarters and has a long-term earnings growth rate of 28.3%. In the past six months, the stock has displayed a fabulous bull run on the index and has risen 29.7%, while the Zacks categorized Retail-Apparel/Shoe industry decreased 11.6%.

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