Retailers are evolving to meet the expectations of modern, tech-savvy shoppers. Digitization has been one of the keys to staying competitive against e-commerce rivals, a move that has enabled the industry to grow same-store sales. Consequently, retail stocks have climbed 21.5% over the past six months, beating the S&P 500 by 5 percentage points.

Although these companies have produced results lately, investors must be mindful as many companies in this space face structural headwinds. With that said, here are two consumer stocks boasting durable advantages and one we’re steering clear of.

One Consumer Retail Stock to Sell:

Best Buy (BBY)

Market Cap: $15.66 billion

With humble beginnings as a stereo equipment seller, Best Buy (NYSE: BBY) now sells a broad selection of consumer electronics, appliances, and home office products.

Why Are We Cautious About BBY?

1. Weak same-store sales trends over the past two years suggest there may be few opportunities in its core markets to open new locations
2. Gross margin of 22.4% is an output of its commoditized inventory
3. Operating margin of 3.1% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments

Best Buy is trading at $75.04 per share, or 11.7x forward P/E. Dive into our free research report to see why there are better opportunities than BBY.

Two Consumer Retail Stocks to Watch:

Costco (COST)

Market Cap: $425.8 billion

Designed to be a one-stop shop for the suburban consumer, Costco (NASDAQ: COST) is a membership-only retail chain that sells groceries, apparel, toys, and household items, often in bulk quantities.

Why Is COST a Good Business?

1. Same-store sales growth averaged 5% over the past two years, showing it’s bringing new and repeat shoppers into its stores
2. Unparalleled revenue scale of $268.8 billion offsets its poor gross margin and gives it advantageous pricing and terms with suppliers
3. Stellar returns on capital showcase management’s ability to surface highly profitable business ventures

At $960.32 per share, Costco trades at 49.4x forward P/E. Is now a good time to buy? Find out in our full research report, it’s free.

Ollie's (OLLI)

Market Cap: $8.35 billion

Often located in suburban or semi-rural shopping centers, Ollie’s Bargain Outlet (NASDAQ: OLLI) is a discount retailer that acquires excess inventory then sells at meaningful discounts.

Why Is OLLI on Our Radar?

1. Offensive push to build new stores and attack its untapped market opportunities is backed by its same-store sales growth
2. Locations open for at least a year are seeing increased demand as same-store sales have averaged 3.7% growth over the past two years
3. Projected revenue growth of 15.6% for the next 12 months is above its six-year trend, pointing to accelerating demand

Ollie’s stock price of $136.25 implies a valuation ratio of 33.7x forward P/E. Is now the right time to buy? See for yourself in our comprehensive research report, it’s free.

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