Redditors Brought Express Back From the Brink of Death, but That's Not a Reason to Buy
April 4, 2021 by admin 0 Comments
Express (NYSE:EXPR) would probably be a once-promising retailer stock relegated to the annals of retail failures in any other year than 2021. The apparel and accessories retailer has had life breathed back into it by Reddit's r/WallStreetBets crowd.
Source: Helen89 / Shutterstock.com
Prior to that, the company, which boasts 500 retail and factory outlets in the U.S. and Puerto Rico, was in dire straits.
Fortunately though, its significant short interest caught the attention of Redditors. And now, Express can count itself alongside other WSB stocks of late.
Reddited Off Life Support
Back in late January, Redditors keyed in on Express and its 12% shorted float. A la Gamestop (NYSE:GME), small-time investors coordinated to enact a short squeeze on EXPR stock.
It didn't have the same degree of effect as what happened with Gamestop, but it worked. EXPR shares went from flirting with a dollar share price, to above $10 in a matter of a week.
There's probably no way the company's management could have foreseen the fortuitous event. But it was certainly welcome from at least one perspective. On Sept. 29, 2020, Express was notified by the New York Stock Exchange that it was at risk of delisting if it couldn't maintain a $1 share price for a consecutive period of 30 trading days.
Fortunately, on Jan. 29, right in the midst of the Reddit attention, Express received notice that it had indeed maintained that continuous price threshold. Say what you will about the trading practices and loose investment theories of the WSB crowd, but I'd be willing to bet Express is pro-Redditor.
Opportunity Missed
The only thing I don't understand here is why management didn't seize the opportunity to issue shares and bring some capital through the door. Surely someone must have kicked that can around during the period between Jan. 21 and Jan. 27.
Perhaps Naked Brand (NASDAQ:NAKD) and its management were scratching their heads and thinking the same. It issued $50 million in a registered direct offering immediately after Reddit pumped its shares up. I imagine Express must have kicked themselves after seeing what Naked Brand did.
Nevertheless, both retail stocks soon retreated in price.
Chance on Reopening
It didn't take long for EXPR stock to come down from over $10. They've stayed around $3 for most of February and into March, only recently testing $4 again.
Redditors were likely interested in Express solely for its short float percentage. However, the company has yet another catalyst which could propel it upward again.
That catalyst is a play on reopening. The truth is that cyclical stocks are getting a boost on the hopes that the economic reopening is already underway. Investors are pushing capital into cyclical plays across sectors. That means that retail stocks are getting a shot in the arm, whether their underlying business warrants it or not.
My guess is that Express jumped up to $4 in the last few weeks based on similar movement.
Let's disregard that notion for a moment and look at the underlying business.
Financial Position of EXPR Stock
To be fair, Express does have respectable sales. It eclipsed $2 billion in revenues in 2019, and managed $1.2 billion in 2020. Back at the end of 2020, share prices were around $1.
But even during its relative boom year of 2019, it still recorded an operating loss of $217.9 million. That swelled to $455.2 million during 2020. Of course, neither is good.
All in all, Express is a troubled retailer that caught a quick break from Reddit and could possibly ride a reopening higher.
Does that make it worth investing in EXPR stock?
I would say not. Retailers come and go with regularity. It's very difficult to make a long-lasting name retailing apparel. The company's time has likely come and gone. It's an interesting side note in the r/WallStreetBets narrative, but its losses make it one to avoid.
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