Down 65% Since Early February, Can Guess Stock Outperform The S&P 500 Post COVID-19?

Guess (NYSE: GES) stock is likely to outperform the broader S&P 500 index post coronavirus and oil price war crisis, going by the trends seen during the 2008 slowdown – where it fell 67% from the approximate pre-crisis peak in 2008 and recovered 167% by early 2010. The decline in Guess’ stock, and recovery, were higher than that of the S&P 500. We compare the performance of Guess vs. the S&P 500 in our interactive dashboard analysis, 2007-08 vs. 2020 Crisis Comparison: How Did Guess Stock Fare Compare With S&P 500?

On Monday, 9th March, the stock market entered into a phase of extreme volatility, with two significant sell-offs on Monday and Thursday being separated by days of partial recoveries. Overall, there have been two distinct trends driving the recent sell-off. Firstly, the increasing number of Coronavirus cases outside China is causing mounting concerns of a global economic slowdown. Secondly, crude oil prices plummeted by more than 20% after Saudi Arabia increased production. Guess’ stock declined by about 46% between 8th March 2020 and 24th March 2020 (vs. an 18% decline in the S&P 500), and the stock is down 63% since 31st January after the WHO declared a global health emergency in light of the coronavirus spread (vs. about 27% decline in the S&P 500 since then).

The decline in Guess’ stock is understandable, considering the impact that the outbreak and a broader economic slowdown are likely to have on total consumption/consumer spending and the global apparel industry. Notably, a bulk of the company’s total revenues are derived from Europe, which has been hurt by the outbreak of the virus lately. Moreover, people are just not going out shopping for basic apparel – let alone luxury ones. Guess has temporarily shuttered stores in North America and Europe, which is further impacting the company’s performance. In its Q4 earnings (ending January), Guess didn’t provide any revenue/earnings guidance for the current year as the company mentioned it is currently unable to determine with any degree of accuracy the impact the crisis may have in the future on its financial results or how long it may last.

Potential for, say, more than 100% gains in Guess stock and its timing, hinges on the broader containment of the coronavirus spread – our dashboard forecasting US COVID-19 cases with cross-country comparisons analyzes expected recovery time-frames and possible spread

 Guess Stock versus S&P 500 Over 2020 Coronavirus/Oil Price War Crisis

• Guess’ stock declined by about 56% between 8th March 2020 and 23rd March 2020 ( vs. a 25% decline in the S&P 500), and the stock is down almost 70% since 1st February after the WHO declared a global health emergency in light of the coronavirus spread (vs. about 30% decline in the S&P 500 since then).

Guess Stock versus the S&P 500 During 2007-08 Financial Crisis

• Drawing lessons from the 2008 financial crisis, we see Guess stock declined from levels of around $30 in October 2007 (the pre-crisis peak) to levels $10 in March 2009 (as the markets bottomed out) – implying Guess stock lost as much as 67% from its approximate pre-crisis peak.
• This marked a steeper decline than the broader S&P, which fell by as much as 51%.
• However, the stock recovered strongly, rising by 167% between March 2009 and January 2010. In comparison, the S&P rose by about 48% over the same period.

Conclusion:

While Guess’ stock has declined due to the coronavirus crisis, going by trends seen during the 2008 slowdown, it’s possible that it could bounce back strongly and potentially outperform as the crisis winds down with gains in excess of 100% remaining possible.

Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture. It complements our analyses of Coronavirus impact on a diverse set of Guess’ multinational peers – from Tapestry to L Brands and Urban Outfitters. The complete set of coronavirus impact and timing analyses is available here.

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