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Is This an Indication of Further Gains?

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Chico’s FAS (CHS) shares rallied 9.1% in the last trading session to close at $5.50. This move can be attributable to notable volume with a higher number of shares being traded than in a typical session. This compares to the stock’s 3.1% gain over the past four weeks.

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Chico’s stock rally is an extension of its continued progress on the transformational efforts that have been impressing investors. The company’s turnaround strategy has been aiding strong top and bottom lines, despite the pandemic-led disruptions. Its efforts to become a “digital-first, customer-led” company with a strong portfolio of three unique brands bodes well for the long term. As part of the strategy, the company is making incredible progress in enhancing merchandise quality and rolling out marketing strategies for stronger customer engagement, which is likely to propel margins. The company is also on track with its real estate optimization plan, with plans to close nearly 200 underperforming stores in the next two years. This is likely to boost operating margins in the long run.

This clothing chain is expected to post quarterly loss of $0.03 per share in its upcoming report, which represents a year-over-year change of +92.9%. Revenues are expected to be $424.2 million, up 20.7% from the year-ago quarter.

While earnings and revenue growth expectations are important in evaluating the potential strength in a stock, empirical research shows a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

For Chico’s, the consensus EPS estimate for the quarter has remained unchanged over the last 30 days. And a stock’s price usually doesn’t keep moving higher in the absence of any trend in earnings estimate revisions. So, make sure to keep an eye on CHS going forward to see if this recent jump can turn into more strength down the road.

The stock currently carries a Zacks Rank 2 (Buy). You can see the complete list of today’s Zacks Rank #1 (Strong Buy) stocks here >>>>

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