Abercrombie & Fitch (ANF) is a name that hasn’t had the strongest mindshare among fashion labels, but it is currently enjoying a resurgence in popularity and has reported impressive results over many of the past quarters.
Just yesterday, after its Q1 2024 results, it continued to exceed analysts’ expectations, showcasing relentless growth. Revenue grew by 22% from a year ago, and the share price surged 24% on a day when the overall market was down.
The stock has increased 5x in one year! That’s more than Nvidia’s 186% gain. A fashion brand that is hotter than AI! Who would have imagined?
ANF’s popularity is likely due to the company’s strategy of relying on influencers and social media. This has resulted in Abercrombie brands selling 60% online and 40% in stores. Competitors should learn from ANF how to do omnichannel right.
Most would believe that it is too late to jump in on such stocks that have rallied so much. This is definitely true from a growth or value strategy perspective. However, momentum strategies love such stocks.
I must confess I bought ANF at a high at the end of April 2024. It felt uncomfortable because the stock was already up over 400% in a year at that point. But the momentum ranking suggested the stock should be bought. I didn’t have much faith it would go any higher, but it did, and it is up 49% in a month.
Momentum strategies are the most unnatural to implement because they go against human psychology—stocks that have momentum always feel ‘expensive.’
Another fashion brand that performed well is Ralph Lauren (RL). While it may not be top of mind brand, the stock has impressed, rising 68% over the past year.
That said, its revenue growth was less inspiring at just 2% for the latest FY, but its earnings per share increased by 28%. Similar to ANF, RL is investing in boosting online sales and has done particularly well in Asia, achieving a 19% growth in e-commerce sales.
Moving to footwear, Deckers Outdoor (DECK) is enjoying a phenomenal rise in demand for its HOKA brand of running shoes. Yours truly bought a pair too, and the midsole support was indeed there. The shoes feel slimmer and ‘longer’ than any other shoes I’ve worn. I can’t say they are phenomenal, but they are definitely different.
HOKA is currently the largest revenue contributor and highest growth driver for DECK.
The stock is up 118% from a year ago.
Lastly, let’s turn to the beauty sector. e.l.f. Beauty (ELF) is an emerging cosmetic brand that has gained popularity among the young. It reported a whopping 77% gain in revenue for FY24. The growth accelerated post-Covid as people found a reason to wear makeup again after the lockdowns were lifted.
The stock is up 75% over the past year, in tandem with its revenue growth rate.
There are a few points to highlight here:
First, these are stocks we are likely to miss if we rely solely on bottom-up fundamental analysis. These companies lack market leadership; they are underdogs. We might have selected leaders like Nike and Estee Lauder, whose stock prices have plummeted over the year.
Second, using momentum can be a way to fish out such winners. Even if they outperform for just a few months or years, the profits will be good enough. These stocks are not meant for long-term holdings.
I believe that eventually, all good stories will come to an end, and momentum will die off too. Therefore, the key to momentum trading is not just to ride the upside but also to have clear exit rules, such as selling after a support level is breached. If you don’t have a proper exit strategy, don’t chase momentum stocks, even if you have the courage to buy them.
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hi Alvin, what is yr thoughts on NKE? why it is still languishing below when the likes of DECK, CROX, SKX and ADDYY are climbing up well in their stock prices?
NKE is huge so it will be slower to recover. Smaller younger companies can go up fast, but come down fast too.