We recently compiled a list of the 10 Best Clothing Stocks To Buy Now. In this article, we are going to take a look at where Kontoor Brands, Inc. (NASDAQ:KTB) stands against the other clothing stocks.
Trends in the Clothing Sector
The internet has changed the way people shop for clothes. Social media platforms and influencers have popularized the “haul culture,” where people order a big box of low-priced clothes online and sift through them. Also colloquially known as the “Shein effect,” people are turning towards fast fashion, ordering clothing that offers an element of surprise upon receiving. Although Shein’s primary suppliers are in China, its customers are majorly US-based. Its global sales reached around $30 billion last year, almost touching the $39 billion in global sales made by Inditex, the old-school fast fashion leader and owner of Zara.
Fashion and apparel rank among some of the most significant industries in the world, creating key value for global economy. According to McKinsey, it would rank as the seventh largest economy in the world if placed alongside the GDPs of individual countries. The industry, however, faced several challenges in 2023, with the United States and Europe experiencing slow regional growth throughout the year. While China started the year with a strong performance, it gradually waned, slowing down in the second half. Even the luxury segment experienced uneven performance and slower sales. The fashion industry in 2024 can thus be described with one word: uncertainty. Weaker economic growth, dwindling consumer confidence, and rising inflation are making it hard for companies to devise suitable performance drivers. A report by Reuters showed that consumers are becoming increasingly picky about the clothes they buy, and are shopping around more. This has resulted in a “patchwork of winners and losers.”
Fashion forecasts by McKinsey show that the industry is expected to grow by 2-4% in 2024, with growth variations across countries and regions. The luxury segment is anticipated to generate the largest economic profit, but that does not mean companies in this sector won’t experience tough economic environments. Global growth forecast for the industry is lower in 2024 compared to 2023, going from 5%-7% in 2023 to 3%-5% as post-pandemic shopping sprees halt. Growth in China and Europe is expected to slow, but the US market shows a completely different outlook. North America’s growth is expected to pace in 2024 after a sluggish 2023, reflecting the region’s more optimistic outlook.
In addition, the current political unrest in Bangladesh is expected to affect the global clothing industry, disrupting the functioning of global apparel retailers ranging from H&M to Zara. With these clothing giants heading into key holiday season, the disruptions might incur heavy losses to US retailers and Bangladesh itself, which is the third largest exporter of clothing in the world as of 2023. Overall, consumer spending patterns have slowed down in the US, with people making do with what’s in their closets before the season changes. The Federal Reserve is also expected to cut interest rates in September. A report by Reuters showed that investors previously bet that the Fed would slash rates by half a percentage point, and are now estimating an approximately 75% probability of a quarter-percentage-point cut in its September meeting. This is expected to drive consumer confidence and ease spending patterns. With that, let’s look at the 10 best clothing stocks to buy.
Our Methodology
For this article, we used the Finviz stock screener to identify over 20 clothing stocks then narrowed our list to 10 stocks with the most positive upside from current levels, and listed the stocks in ascending order of upside potential, as of August 19. We only chose stocks that had a market cap of over 2 billion.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
A view of a designer staff in front of a studio with lifestyle apparel they designed.
Kontoor Brands, Inc. (NASDAQ:KTB)
Upside from Current Levels: 18.01%
Kontoor Brands Inc. (NASDAQ:KTB) is a global lifestyle apparel company with a portfolio of brands, including Lee, Wrangler, Rock & Republic. The company was formed in 2019 when VF Corporation spun off its denim brands into a new company: Kontoor Brands. While it also licenses apparel, accessories, and footwear, but denim remains its specialty. It targets a diverse customer base, including women and men of varying ages and income levels.
The company is expanding its specialties, with Lee launching its first-ever golf collection for men in May. formerly famous for its casual apparel, the brand now offers versatile performance-stretch bottoms and tops to transition from officewear to sportswear and provide its customers with a wide array of lifestyle apparel.
While Kontoor Brands, Inc. (NASDAQ:KTB) is not the largest company out there, it has been receiving considerable attention due to its substantial price hike in the last few months. Trading at a forward P/E ratio of 14.55, the company is trading at a 5.30% discount to its sector.
But is Kontoor Brands, Inc. (NASDAQ:KTB) profitable? The company has been growing its revenue at a CAGR of 4.63% over the past three years, and has experienced growth with a CAGR of 19.60% in its diluted EPS in the same time frame.
Kontoor Brands, Inc. (NASDAQ:KTB) holds a consensus Buy rating among analysts, and its median price target of $68.45 indicates an upside of 18.01% from current levels. Kontoor Brands, Inc. (NASDAQ:KTB) is held by 24 hedge funds as of Q2 2024, ranking it one our list of the best clothing stocks to buy.
Overall KTB ranks 5th on our list of the best clothing stocks to buy. While we acknowledge the potential of KTB as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than KTB but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.
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