With the RSI at a Record Low, Is It Time to Go Bargain Hunting on Burlington?

Key Points

• Burlington Stores shares have fallen more than 30% from their July high, pushing the stock's RSI to a deeply oversold level near 17.
• Weak current-quarter earnings guidance triggered the sell-off, but Burlington beat quarterly estimates and actually raised its full-year profit forecast.
• Goldman Sachs reiterated a Buy rating with a $382 price target, and history shows the stock rallied over 200% after a similar oversold reading during COVID.

Any investor looking for a bargain might have a natural home in Burlington Stores Inc. NYSE: BURL, the off-price retailer whose whole appeal rests on selling brand-name goods for less. There’s a certain irony in the fact that its own shares have been selling off heavily in recent weeks, and are currently down more than 30% from the all-time high they set in July.

The sell-off has pushed one of the stock’s technical momentum indicators to an extreme. Burlington’s relative strength index (RSI) has sunk to around 17, its lowest reading in several years. For context, the last time it was this washed out was during the COVID-era market crash, and, interestingly, from those depths the shares went on to rally a remarkable 230%.

That history raises a tantalizing question for investors. With sentiment this bleak and the stock this oversold, is Burlington suddenly the very kind of bargain its own shoppers are always hunting for?

To answer that, you have to understand what triggered the slump in the first place.

Why the Shares Slumped

Shares were already falling ahead of last week's earnings report, and the numbers did little to stem the bleeding. The results themselves were, in many respects, fine. The company beat analyst expectations for both headline revenue and earnings per share, but the trouble lay in the accompanying outlook, specifically what it implied for profits.

The truth is the shares had probably run too hard, too fast. Having been sent up more than 30% in the space of a single month, a heady pace for a steady discount retailer, the stock was ripe for some profit-taking, and that is exactly what began ahead of last week's report. The disappointing outlook then simply gave the sellers a fresh reason to keep going.

The core sticking point was guidance for the current quarter, with management expecting earnings per share to land between $1.60 and $1.70. This wasn't just below the $1.80 it was at for the same quarter last year, it was also well below the $2.03 consensus estimate. The company is also expecting a squeeze on margins driven by stubbornly high costs of sourcing its merchandise. For a market that had been busy bidding the shares up to record highs, any hint of shrinking profitability was always going to sting.

The More Encouraging Reading

Yet dig a little deeper, and the picture is far less gloomy than that violent post-earnings price reaction suggests. Crucially, while the near-term guidance disappointed, Burlington actually raised its full-year forecast, hardly the act of a management team bracing for trouble.

The margin story, too, is more nuanced than it first appears. Much of the near-term pressure stems from a deliberate choice rather than a deterioration in the business. Burlington received a $55 million tariff refund, and rather than banking it as extra profit, management is reinvesting it in sharper prices for shoppers, sacrificing a little short-term margin to strengthen its value proposition and drive future sales.

That is a strategic decision, and it points to a confident retailer playing the longer game. For a business whose entire model depends on offering unbeatable value, spending to reinforce exactly that looks less like weakness and more like shrewd planning.

Could History Repeat?

So where does that leave the bargain hunters? This is where the technical setup becomes hard to ignore. An RSI down around 17 marks the stock as deeply oversold, the kind of extreme that often flags a selling low point rather than the start of a fresh leg lower. Given that the business raised its longer-term guidance, the current setup is hard to ignore from a pure risk/reward standpoint.

Indeed, investors need only look to Goldman Sachs, which recently reiterated its Buy rating on Burlington with a refreshed $382 price target, implying nearly 45% upside from current levels, to get a sense of the opportunity on offer.

The parallel with the COVID-era plunge only sharpens the point. The last time Burlington's RSI was down this low, the shares went on to rally more than 200% from their lows. History rarely repeats itself quite so neatly, but it does often rhyme.

Weighing Up the Opportunity

While the broader macro situations are entirely different, the ingredients that made the stock a bargain back then are largely present again: a fundamentally healthy retailer, sold off hard on a near-term wobble, with its full-year guidance actually rising and sentiment about as bleak as it gets.

There is, of course, a chance that Burlington shares could yet fall further before they turn, and the company’s performance will be more closely scrutinized than usual in the coming months. But for investors willing to look past a single quarter's cautious guidance, this looks like one of those rare moments when the discount retailer is trading at a serious discount itself.

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