Is Roots Corporation Stock a Falling Knife?

Roots Corporation (TSX:ROOT) stock fell 10.29% on September 13.

Shares have plunged 26.4% over the past week. The stock is now down 37% in 2018 so far.

Roots released its second quarter results on September 12. The company reported a net loss of $4.1 million or $0.10 per share in the quarter which sparked the sell off. Roots posted an adjusted net loss of $2.4 million or $0.06 per share.

Total sales rose 3.6% year-over-year to $60.2 million and direct-to-consumer sales increased 3.5% to $48.3 million. The latter number was not as encouraging as Roots would have liked as it, like other retailers, is pinning its hopes on e-commerce growth going forward.

Adjusted EBITDA just barely cracked into positive territory at $32,000 compared to $1.3 million in Q2 2017. Roots had a relatively poor debut when the company launched its initial public offering in October 2017.

However, shares gained momentum after holiday sales jumped up in the fourth quarter of 2017. The company is now entering its peak sales seasons but the year-over-year drop-off may be concerning.

Is Roots a falling knife as it hovers around its all-time low, or is it a buy-low opportunity? Clothing stocks are a tenuous bet in the current retail environment, and Roots has failed to mimic the e-commerce growth seen at companies like Canada Goose or even Aritzia.

As far as Canadian clothing stocks go, there are better options on the TSX which make Roots a risky bet especially after its recent plunge. Investors should look elsewhere for growth in the fall.