3 Reasons to Sell OXM and 1 Stock to Buy Instead

What a brutal six months it’s been for Oxford Industries. The stock has dropped 37.9% and now trades at $45.70, rattling many shareholders. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.

Is now the time to buy Oxford Industries, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Why Do We Think Oxford Industries Will Underperform?

Even though the stock has become cheaper, we're cautious about Oxford Industries. Here are three reasons why there are better opportunities than OXM and a stock we'd rather own.

1. Same-Store Sales Falling Behind Peers

Investors interested in Apparel and Accessories companies should track same-store sales in addition to reported revenue. This metric measures the change in sales at brick-and-mortar locations that have existed for at least a year, giving visibility into Oxford Industries’s underlying demand characteristics.

Over the last two years, Oxford Industries’s same-store sales averaged 1.9% year-on-year growth. This performance was underwhelming and suggests it might have to change its strategy or pricing, which can disrupt operations.

2. Projected Revenue Growth Shows Limited Upside

Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.

Over the next 12 months, sell-side analysts expect Oxford Industries’s revenue to stall, close to its 8.6% annualized growth for the past five years. This projection doesn't excite us and indicates its newer products and services will not catalyze better top-line performance yet.

3. New Investments Fail to Bear Fruit as ROIC Declines

ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Oxford Industries’s ROIC has unfortunately decreased significantly. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of Oxford Industries, we’ll be cheering from the sidelines. After the recent drawdown, the stock trades at 10.1× forward P/E (or $45.70 per share). While this valuation is reasonable, we don’t see a big opportunity at the moment. There are superior stocks to buy right now. We’d suggest looking at the Amazon and PayPal of Latin America.

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