These 3 Retailers are Growing This Year and May Have More Room to Run

The COVID-19 pandemic has had a profound impact on most U.S. industries. Retailers have been hit especially hard as housebound and cautious consumers have kept store traffic to a minimum.

Yet while many retail businesses have struggled, others have thrived. Some have largely benefitted from near-term stockpiling demand for essential foods, cleaning supplies, and personal care items. Others have found new ways such as through online channels to draw customers and take advantage of unprecedented demand.

Let's take a look a few of the retailers that have risen to the occasion. These companies have been able to grow in 2020 despite the challenges faced by traditional retail. And not only have they grown but given the opportunities that lie ahead for each, they may still be undervalued.

What is Behind the Strength at Ollie's Bargain Outlet (NASDAQ: OLLI)?

This week Ollie's Bargain Outlet (NASDAQ: OLLI) said that it expects comparable store sales to increase approximately 40% to $515 million in the second quarter ending August 1^st. In addition, its gross margin is forecast to improve to around 39% which would bring it back to the historical second-quarter level.

Ollie's has found success by capitalizing on the current consumer environment. It has kept up with the surge in customer demand through supply chain execution and the sweat equity of its employees. Management has done an outstanding job of rising to the challenge to efficiently get value shoppers the products they expect from Ollie's and in higher volume.

Although the company expects growth to moderate in the third and fourth quarters, it appears to be on a sustainable growth trajectory. The pandemic seems to have paved the way for new bargain-seeking shoppers to become acquainted with the discount retailer.

Ollie's buys closeout and excess inventory of national brands on the cheap and then sells cheap. This motto is resonating with budget-strapped Americans. A growing customer base dubbed "Ollie's Army" bodes well for future growth potential which includes an opportunity to expand into untapped markets in the western parts of the country.

Although Ollie's share price has more than tripled from its March 2020 bottom it may have more room to run. The forward P/E ratio of 47x is by no means inexpensive but this is a company that looks to be on a path to delivering steady high single-digit growth over the next few years. As such, investors should view any pullback in the stock as a long-term buy opportunity.

Is Dollar General (NYSE: DG) Growth Sustainable?

Dollar General (NYSE: DG) is another company that has seized the moment. A wave of value hungry consumers has helped thrust the "dollar stores" into the spotlight this year and Dollar General is among those reaping the rewards.

It notched 22% same-store sales growth and diluted EPS jumped 73% in the 13-week period ended May 1^st.  As an essential retailer, it benefitted from a stampede of customers and higher average transaction amounts during the peak of pandemic shopping largely in its home products category.

While the herd has slowed in conjunction with the early days of economic recovery, a shift in consumer attention towards the discount retail segment may have staying power. Continued uncertainty around a potentially prolonged pandemic bodes well for the company.

Longer-term consumer preferences appear to be shifting towards a greater appreciation for value along with a desire to stock up on essential goods in anticipation of a possible repeat adverse event. Dollar General has never been so relevant and its place in the retail world may be here to stay.

Meanwhile, the company has continued to stock its shelves and maintain high inventory levels. It is boldly moving forward with plans to reach 1,000 new store openings and 1,500 existing store remodels in fiscal 2020.

According to the Zacks consensus estimate, analysts are expecting second-quarter EPS to be $2.32 which would represent robust 33% growth. Driven by the store expansion plans and initiatives around improved pricing, private label product introductions, and digital launches, Dollar General is well-positioned for long term growth.

The stock trades at a reasonable 22x forward earnings which is slightly higher than peer Dollar Tree (NASDAQ: DLTR). While both are attractive investments in this economy, Dollar General's aggressive footprint ambitions and digital growth initiatives like DG digital coupons, DG GO! mobile checkout, and DG Pickup make it particularly compelling.

Is Lowe's (NYSE: LOW) Still a Good Buy Here?

Switching gears to home improvement retail, Lowe's (NYSE: LOW) has also been a standout performer this year. The company posted 12% U.S. comparable store sales growth and 45% adjusted EPS growth for the three-month period ended May 1^st.

Much of the growth was driven by a successful pivot to its online channel to meet the heightened demand for mobile ordering and pickup service. Lowe's has been the beneficiary of increased consumer interest in home renovation and do-it-yourself projects during the pandemic. Online sales soared 80% in the recent quarter showing that its investments in technology continue to pay off.

More recently, a sharp rebound in homebuilding activity is providing a secondary tailwind. Sales in the Pro segment were strong in Q1 as double-digit comp growth was seen in the hardware, plumbing, and tools categories. The focus on homebuilders and contractors through the dedicated LowesForPros website and a strategic partnership with Salesforce.com is a positive and important growth driver.

Strong growth in the professional side of the business should drive some solid results in the quarters ahead as the U.S. housing market strengthens. The growing online presence amid a consumer affinity for pickup service is also likely to be supportive of continued growth.

Lowe's stock has had a remarkable run off its March 2020 bottom. But the company is showing no signs of slowing down and in fact may be ramping given the current housing market momentum.

While it is trading near an all-time high, Lowe's PEG ratio, i.e. its P/E ratio relative to its growth rate, is a modest 1.4. This is below where it was in 2018 and well below Home Depot (NYSE: HD)'s current PEG ratio of 2.3.