Why Guess Stock Could Extend Its 95% Rally Over Recent Months By Another 30%

Based on a comparison of Guess’ stock (NYSE: GES) trajectory over recent months with that around the 2008 recession, we believe that the stock can potentially gain 30% to reach almost $17 once fears surrounding the coronavirus outbreak are put to rest. A detailed comparison of Guess’ performance vis-à-vis the S&P 500 is available in our interactive dashboard analysis, How Did Guess Stock Fare vs. The S&P 500?

The World Health Organization (WHO) declared a global health emergency at the end of January in light of the coronavirus spread. The rally in the equity market continued till February 19, with the S&P 500 reaching a record high, but the trend reversed sharply over the following weeks. Guess stock lost 71% of its value (vs. about a 34% decline in the S&P 500) between February 19 and March 23. A bulk of the decline came after March 6, when an increasing number of Coronavirus cases outside China fueled concerns of a global economic slowdown. Notably, though, the multi-billion dollar stimulus package announced by the U.S. government has helped the stock price recover 95% since March 23 (vs. about 39% gain in the S&P 500) to its current level of around $13. Despite these gains, the stock is still down 42% since the beginning of the year.

The Sharp Movements In Guess’ Stock Were Triggered By Several Underlying Factors

The decline in Guess’ stock is understandable, considering the impact that the outbreak and a broader economic slowdown are having on consumer spending and on the global apparel industry in particular. The company’s first-quarter was wiped out due to the impact of the pandemic, which has forced people to stay indoors – resulting in a steep decline in the demand for the company’s products. Moreover, dwindling consumer demand reduced discretionary spending, and stay-at-home orders resulting in store remaining closed continue to take their toll on the company’s stock. However, gradual store openings have provided a boost to the company’s stock price over recent weeks.

But How Does The Movement This Time Around Compare With The Trend During The 2008 Downturn?

• We see Guess stock declined from levels of around $30 in October 2007 (the pre-crisis peak) to levels of around $10 in March 2009 (as the markets bottomed out) – implying the company’s stock lost as much as 67% from its approximate pre-crisis peak -steeper than the broader S&P, which fell by about 51%.
• However, Guess stock recovered strongly post the 2008 crisis to about $27 in early 2010 – rising by 167% between March 2009 and January 2010. In comparison, the S&P bounced back by about 48% over the same period.

Will Guess’ Stock Recover Similarly From The Current Crisis?

Keeping in mind the fact that Guess stock fell 71% from the market peak on February 19 to the low on March 23 compared to the 67% decline during the 2008 recession, we believe it can potentially recover by 30% to levels of $17 once economic conditions begin to show signs of improving. Notably, this marks a partial recovery to the $22-level the stock was at before the coronavirus outbreak gained global momentum.

That said, the actual recovery and its timing hinge 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 of the virus. Further, our dashboard -28% Coronavirus crash vs. 4 Historic crashes builds a complete macro picture and complements our analyses of Coronavirus impact on a diverse set of Guess’ multinational peers – including L Brands, Columbia Sportswear and Urban Outfitters. The complete set of coronavirus impact and timing analyses is available here.

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