H&M Has Lagged Behind Zara Owner Inditex In Online Shopping. Both Stocks Fell.
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H&M Has Lagged Behind Zara Owner Inditex In Online Shopping. Both Stocks Fell.

By Jack Denton
Wed, Dec 16, 2020 12:11amGrey Clock 2 min

The Covid-19 pandemic caused sales to slump at retail giants Inditex and Hennes & Mauritz (H&M) in November, reversing glimmers of a recovery and shining a light on the very different online sales performance between the two companies.

Shares in both companies fell in European trading, with Inditex, which owns Zara, trading near 2% lower and H&M dropping more than 2% on Tuesday.

The back story. As global coronavirus infection rates slowed through the summer and government restrictions were loosened, shoppers flocked back to stores after months of retail closures. Both Spanish Inditex and Swedish H&M—the largest and second-largest fashion chains in the world, respectively—returned to profitability in the autumn after large losses.

With the Covid-19 pandemic keeping millions of shoppers housebound, Inditex has made a key investment in expanding online shopping. In June, the company announced a €2.7 billion ($4.34 billion) investment plan to improve online operations and increase store footprint, of which €1 billion was earmarked for digital investments.

H&M, still controlled by its founding Persson family, was already struggling before the pandemic hit. The company has been slower to shift to online shopping in favour of its more than 5,000 stores and the low-cost fashion strategy it helped pioneer.

What’s new. Both companies reported results on Tuesday—Inditex for the three months to the end of October, and H&M for the quarter ending Nov. 30 as well as the full year.

Store and online sales grew slowly from August to October at Inditex, with October sales at 94% of 2019 levels at constant currencies. In total, net sales of €6.1 billion in the third quarter were 14% lower than the same period in 2019. However, as coronavirus cases surged in November, 21% of stores remained closed and sales fell to 81% of 2019 levels.

At H&M, net sales for the fourth quarter were 10% lower in local currencies from the same period last year. Much of that came in the final month: sales were down by just 3% year-over-year from Sept. 1 to Oct. 21, but were 22% lower than 2019 in the period from Oct. 22 to Nov. 30.

Looking ahead. The results from the retail giants show the impact the second wave of Covid-19 has brought on sales. Fears over how much this hurts the bottom line for the full year is what may have caused both stocks to fall.

But the results also shine a light on the companies’ different online strategies—a crucial sales platform beyond the pandemic. Inditex reported that online sales grew 76% in the nine months to the end of October, while analysts expect H&M to lag far behind. The Swedish retailer didn’t post any fresh online figures on Tuesday. It had posted online sales growth of 40% in the second quarter and just 27% in the third.



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These stocks are getting hit for a reason. Instead, focus on stocks that show ‘relative strength.’ Here’s how.

By KEN SHREVE
Wed, Jun 12, 2024 4 min

A lot of investors get stock-picking wrong before they even get started: Instead of targeting the top-performing stocks in the market, they focus on the laggards—widely known companies that look as if they are on sale after a period of stock-price weakness.

But these weak performers usually are going down for good reasons, such as for deteriorating sales and earnings, market-share losses or mutual-fund managers who are unwinding positions.

Decades of Investor’s Business Daily research shows these aren’t the stocks that tend to become stock-market leaders. The stocks that reward investors with handsome gains for months or years are more often  already  the strongest price performers, usually because of outstanding earnings and sales growth and increasing fund ownership.

Of course, many investors already chase performance and pour money into winning stocks. So how can a discerning investor find the winning stocks that have more room to run?

Enter “relative strength”—the notion that strength begets more strength. Relative strength measures stocks’ recent performance relative to the overall market. Investing in stocks with high relative strength means going with the winners, rather than picking stocks in hopes of a rebound. Why bet on a last-place team when you can wager on the leader?

One of the easiest ways to identify the strongest price performers is with IBD’s Relative Strength Rating. Ranked on a scale of 1-99, a stock with an RS rating of 99 has outperformed 99% of all stocks based on 12-month price performance.

How to use the metric

To capitalise on relative strength, an investor’s search should be focused on stocks with RS ratings of at least 80.

But beware: While the goal is to buy stocks that are performing better than the overall market, stocks with the highest RS ratings aren’t  always  the best to buy. No doubt, some stocks extend rallies for years. But others will be too far into their price run-up and ready to start a longer-term price decline.

Thus, there is a limit to chasing performance. To avoid this pitfall, investors should focus on stocks that have strong relative strength but have seen a moderate price decline and are just coming out of weeks or months of trading within a limited range. This range will vary by stock, but IBD research shows that most good trading patterns can show declines of up to one-third.

Here, a relative strength line on a chart may be helpful for confirming an RS rating’s buy signal. Offered on some stock-charting tools, including IBD’s, the line is a way to visualise relative strength by comparing a stock’s price performance relative to the movement of the S&P 500 or other benchmark.

When the line is sloping upward, it means the stock is outperforming the benchmark. When it is sloping downward, the stock is lagging behind the benchmark. One reason the RS line is helpful is that the line can rise even when a stock price is falling, meaning its value is falling at a slower pace than the benchmark.

A case study

The value of relative strength could be seen in Google parent Alphabet in January 2020, when its RS rating was 89 before it started a 10-month run when the stock rose 64%. Meta Platforms ’ RS rating was 96 before the Facebook parent hit new highs in March 2023 and ran up 65% in four months. Abercrombie & Fitch , one of 2023’s best-performing stocks, had a 94 rating before it soared 342% in nine months starting in June 2023.

Those stocks weren’t flukes. In a study of the biggest stock-market winners from the early 1950s through 2008, the average RS rating of the best performers before they began their major price runs was 87.

To see relative strength in action, consider Nvidia . The chip stock was an established leader, having shot up 365% from its October 2022 low to its high of $504.48 in late August 2023.

But then it spent the next four months rangebound—giving up some ground, then gaining some back. Through this period, shares held between $392.30 and the August peak, declining no more than 22% from top to bottom.

On Jan. 8, Nvidia broke out of its trading range to new highs. The previous session, Nvidia’s RS rating was 97. And that week, the stock’s relative strength line hit new highs. The catalyst: Investors cheered the company’s update on its latest advancements in artificial intelligence.

Nvidia then rose 16% on Feb. 22 after the company said earnings for the January-ended quarter soared 486% year over year to $5.16 a share. Revenue more than tripled to $22.1 billion. It also significantly raised its earnings and revenue guidance for the quarter that was to end in April. In all, Nvidia climbed 89% from Jan. 5 to its March 7 close.

And the stock has continued to run up, surging past $1,000 a share in late May after the company exceeded that guidance for the April-ended quarter and delivered record revenue of $26 billion and record net profit of $14.88 billion.

Ken Shreve  is a senior markets writer at Investor’s Business Daily. Follow him on X  @IBD_KShreve  for more stock-market analysis and insights, or contact him at  ken.shreve@investors.com .