Macy's Inc. (NYSE: M) has climbed 207% since November 2020. And Macy's stock could soar even higher this summer.
No, this is not another "reopening" play. It's not another "meme stock," either.
Macy's stock may have what it takes to beat out other retailers in the long term, and investors are starting to take notice.
Wall Street doesn't seem to understand this yet. They predicted a loss for the stock last quarter and were taken by surprise.
And the analysts have yet to adjust their targets for Macy's based on the latest numbers.
So, now would be a great time to consider this stock - before they catch on. Here's why.
No More Macy's Short Squeeze
Part of what drove Macy's stock from $11 in January to $18 in March was the short-squeeze frenzy of late.
Most people were aware of GameStop Corp. (NYSE: GME) and AMC Entertainment Holdings Corp. (NYSE: AMC). But behind the scenes, retail traders were scouring the exchanges for stocks with short interest that could be exploited for gains.
If a stock's short volume made up 30% of its outstanding shares, these traders would swarm the stock. This would drive the price up and force hedge funds to buy back shares to avoid infinite potential losses, sending the stock price higher.
Less than 30 days ago, Macy's stock had 17.8% short interest. That's nothing compared to GameStop, for which over 100% of the public float was shorted. But it's also not quite Nike Inc. (NYSE: NKE) with short interest under 1%.
Macy's short interest today has fallen to 13%, meaning the short squeeze could be ending. But, along with that, other fundamental factors appear to be supporting the Macy's stock price.
In fact, unlike GameStop and AMC, Macy's could be steeply undervalued for what it offers.
Macy's Stock Could Pop on Pent-Up Demand
Much of the smart money betting against Macy's pre-pandemic could have been the same voices anticipating a "retail apocalypse" over the last few years. The thesis was that customers would stop going to brick-and-mortar stores and do their shopping online, where newer, more tech-savvy companies would annihilate the dinosaurs.
The pandemic seemed to accelerate that, and Macy's took a loss of $0.81 per share in Q2 2020.
Shoppers seemed to adapt easily to an online-only framework. Many believed this was a taste of things to come over the next few decades.
Whether or not this is true, closure of brick-and-mortar stores was temporary for now. This summer, Macy's expects a wave of pent-up demand as malls open again. Sixty-six percent of American adults have said they currently feel safe going to a mall. And now, people who don't even like the food court are snagging chicken teriyaki samples.
At least for now, brick-and-mortar stores are safe. But now, we are going to get into why Macy's is not just any other retailer.
Whether or not there is a "retail apocalypse," you can't really put this company in the same league as Sears.
Here's why Macy's could still be a promising long-term hold.
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Why the Macy Stock Forecast Is Green
"Retail apocalypse" concerns could have played a role in Macy's stock losing 84% of its value since a 2018 high of $39. That could have also made hedge funds want to short the stock into oblivion for a moment.
But here's why that's not happening anymore.
Unlike other speculative "short squeeze" plays, and unlike many stock plays on stores reopening, Macy's actually runs a solid operation.
Along with being a staple in brick-and-mortar malls across America, this company is also adapting to change.
In early 2020, Macy's announced a three-year strategy it called "Polaris" to strengthen customer relationships and accelerate digital growth.
Both of these are key to survival in the new commercial landscape. And Macy's has all the resources to pull it off.
It expects to grow online sales from $8 billion this year to $10 billion in 2023.
It has already increased digital sales to 37% of its annual revenue per its 2020 report.
With $1.8 billion in cash, 57% revenue growth, and a recent 195.12% earnings surprise last quarter, the company appears to be laying a solid foundation to invest further in its digital plans.
Its Q2 2021 report showed $103 million profit after taking loss in the same period last year. Analysts predicted a loss of $0.41 per share, but Macy's brought in $0.39 profit.
Lastly, when you look at Macy's price/sales (P/S) ratio, the stock is incredibly undervalued at $18. The market cap of $5.78 against $20 billion in 2020 sales makes the P/S around 0.28.
Usually, a P/S between 1 and 2 is solid. Under 1 is outstanding.
Our Macy's Stock Price Prediction
We know that this stock could see some life in 2021. That makes it a great "reopening" play.
Macy's could also have some hedge funds holding out for a "retail apocalypse." That would make it a solid "short squeeze" play.
Ultimately, if you're looking for a big gain, the "reopening" angle is more sensible.
But you can get even greater assurance of Macy's stock when you look at the fundamentals.
Macy's has a long way to recover to an all-time high of $72. But the company has shown it can make adjustments where necessary as trends evolve.
Deutsche Bank AG (NYSE: DB) gives the stock a 12-month target of $23. Evercore gives it a $27 target.
Those are solid 27% and 50% gains, respectively.
But given the price/sales and its potential to put up a fight in the online world, Macy's stock could go even higher.
Three Stocks Even Better Than Macy's
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All three are trading at a discount... they're under-the-radar companies most people haven't even heard of... and they have massive tailwinds ready to send their share prices into the stratosphere.
To get the company names, tickers, and price targets for Shah's picks, go here now.
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About the Author
Mike Stenger, Associate Editor for Money Morning at Money Map Press, graduated from the Perdue School of Business at Salisbury University. He has combined his degree in Economics with an interest in emerging technologies by finding where tech and finance overlap. Today, he studies the cybersecurity sector, AI, streaming, and the Cloud.