The time to shop, as smart retail shoppers are aware, is after the holidays. In 2019, that advice holds true for the major stock market averages as well.
Today, we have a small-cap stock to buy that co
uld skyrocket as much as 400% in a year.
Our top small-cap stock was hurt by the drop in the overall market in late 2018 and early 2019. The share price of this retailer has also fallen because of the "Amazon effect." Many shoppers are increasingly turning to Amazon for all their shopping needs, which is impacting sales for other retailers. But the retail stock we have for you today is actually insulated from Amazon.
Sometimes, a declining stock can be good news for investors. In the case of today's stock, the fair value is now far above the trading price. So it's poised for a big move upward. Multiple valuation metrics show that the stock could soar up to 400%.
Plus, it just earned an upgrade to the top score on the Money Morning Stock VQScore™ system.
As Money Morning readers know, there's a Retail Ice Age hitting brick-and-mortar stores and other retailers throughout the United States. Many venerable companies have gone into bankruptcy or have closed stores to survive.
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But not every brick and mortar retailer is in trouble. The market can unjustly punish all retail stocks. Our top small-cap stock is a case in point.
It's also significant that this retailer has taken multiple steps to improve the bottom line results recently. As a result, FactSet forecasts a 10.5% climb in the company's earnings next year, which is a solid increase for the retail sector.
It's also a company that has the elements needed to survive Amazon.com Inc.'s (NASDAQ: AMZN) footprint. This company is one of the few that have the ingredients to survive the Amazon effect.
It's in a shopping niche where customers see shopping as a fun activity - plus, it enjoys a highly loyal customer base. They return to buy the products over and over again, regardless of market conditions.
Yes, given the market and retail climates, investors can be skittish. But eventually, strong sales and value win out.
When they win out with our top small-cap stock, shares can skyrocket...
This Is Our Top Small-Cap Stock to Buy Now
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Our pick today is Vera Bradley Inc. (NASDAQ: VRA), which started out in the early 1980s as a maker of luggage and handbags. Two Indiana neighbors didn't like the dark, conservative luggage they saw in an airport during a trip.
So they started making bags with vibrant colors and bright patterns. They began with seed money of $500 and developed products on a ping-pong table.
Now, VRA employs more than 2,700 people. It has over 150 locations for retail sales and production. It produces not just the original suitcases and handbags, but bedding, kitchenware, and swimsuits.
While the product is sometimes classified as a luxury brand, purchases aren't a stretch for the middle class. Handbags, for example, are usually under $100.
That strong price point, along with stellar products, has resulted in yearly sales of more than $400 million - and a loyal customer base.
Critics do observe a decline in sales, which were $455 million in fiscal 2018, down from a high of $541 million in fiscal 2013.
As we said up top, VRA, like other retailers, is hurting slightly from the Amazon effect. For a while, a lot of its earnings were made by selling its products at prices marked for clearance. Its attempts to keep abreast of changes in the retail sector hurt it, with dropping sales and earnings.
Like many retailers, survival was touch and go for a while.
But VRA went back to basics. The chief executive officer, Rob Wallstrom, announced in 2017 that the company was going to restrict clearance sale prices, cutting expenses and reducing inventory.
So while sales online have dropped some at VRA, profits have risen. The company's net income was $4.2 million in the last quarter reported, versus only $356,000 in the prior year.
Vera Bradley customers are willing to purchase its products at full price. It turns out that the previous strategy of price cuts had been totally unnecessary.
Now, earnings came in slightly below expectations. Critics focused on the shortfall.
But we think that VRA is back on track and will rise to a fair value.
VRA Shares Are Oversold
Currently, VRA shares sell at $9.24, down steeply from their September level, which reached as high as $16.78.
But the stock appears totally oversold right now.
Take the price/earnings (P/E) ratio for the next year. It stands 30% below the industry average, at 18.37. If we take the P/E ratio for the past 12 months, it's 60% below the average.
VRA's price/earnings-to-growth (PEG) ratio is 0.90. That's only 69% of the 1.31 average for the industry. Other metrics, such as the ratios of price to sales and price to cash flow, stand at 36% and 37% of the average for the industry.
Finally, the 0.96 price-to-book ratio is only a fraction of the 5.34 average for the industry.
All added up, the metrics point to a potential increase of 400% for the best small-cap stock to buy in 2019.
These 3 Stocks Are the Key to 2019's Greatest Profits
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