Seasonal Rotation in Retail: Uncovering Undervalued S&P 500 Retailers with December Momentum

The retail sector, often a barometer of consumer confidence, exhibits distinct seasonal patterns that investors can exploit. While the S&P 500's Retail sector underperformed broader markets in 2023-lagging behind high-flying sectors like Information Technology and Communication Services-certain names within the space demonstrated resilience and undervaluation metrics that warrant closer scrutiny. This analysis explores how historical December performance, coupled with current valuation gaps, could position specific retailers as compelling seasonal plays.

The Case for December Outperformance

December has historically been a strong month for retail stocks, driven by holiday spending and year-end inventory restocking. However, 2023 presented a mixed picture. The S&P 500 gained 3.3% year-to-date through December, while the retail sector's average trailing twelve-month (TTM) price-to-earnings (P/E) ratio reached 31.94, reflecting a slight premium to historical averages. This suggests that while the sector as a whole faced headwinds, individual stocks with strong earnings execution could diverge from the trend.

Boot Barn Holdings (BOOT) exemplifies this divergence. In December 2023, the company reported earnings per share (EPS) of $1.81, exceeding the Zacks Consensus Estimate of $1.80 and marking a year-over-year improvement from $1.74. Revenue surged to $520.4 million, outpacing expectations by 0.01% and reflecting a 1.1% increase from the prior year's $514.55 million. Despite these results, Boot Barn's stock price declined by 3.7% year-to-date, underperforming the S&P 500's gains. This disconnect between earnings strength and share price suggests a potential undervaluation, particularly when compared to the sector's elevated P/E ratio.

Valuation Gaps and Seasonal Catalysts

Boot Barn's valuation metrics further highlight its appeal. As of October 2025, its P/E ratio stood at 27.44, significantly lower than the S&P 500 retail sector's average P/E of 29.80. This discount, combined with consistent revenue beats-Boot Barn exceeded consensus estimates in two of its last four quarters-positions the stock as a candidate for mean reversion. Analysts have set a $229 price target for Boot Barn, implying over 20% upside from its December 2023 closing price.

The company's December 2025 price action also underscores its volatility and potential for seasonal gains. Shares fluctuated between $194.00 and $210.25 during the month, with a peak of $207.98 on December 11. Such swings, while risky, align with the retail sector's tendency to experience sharp price movements during the holiday season. For investors, this volatility represents both a reward and a caution: while strong earnings and undervaluation create a floor for the stock, macroeconomic risks-such as potential tariffs-could dampen consumer spending and retail margins.

Broader Sector Implications

The retail sector's 2023 performance highlights a broader trend: while the sector's TTM P/E ratio of 31.94 suggests overvaluation relative to its 10-year average of 24.09, individual stocks like Boot Barn demonstrate that not all retailers are equally exposed to macroeconomic pressures. This divergence creates opportunities for investors to capitalize on mispricings. For instance, Boot Barn's P/E of 27.44 is not only below the sector average but also reflects a company with a clear growth trajectory in niche markets like Western apparel and footwear.

However, the lack of data on On Holding (ON)-another name flagged by BTIG for momentum-limits the ability to draw parallels. Without historical December performance or valuation metrics for ON, investors must focus on the available evidence. Boot Barn's case, though, is robust enough to justify a closer look, particularly as December 2023's earnings beats and revenue growth suggest the company is well-positioned to benefit from seasonal demand.

Conclusion: A Strategic Approach to Seasonal Rotation

Seasonal market rotation in retail hinges on identifying stocks that combine strong historical December performance with current undervaluation. Boot Barn's earnings resilience, coupled with a P/E ratio that lags the sector average, makes it a compelling candidate for December 2025. While the broader retail sector remains overvalued, individual names with solid fundamentals and price momentum can offer asymmetric risk-reward profiles. Investors should monitor macroeconomic signals-particularly tariff developments-and balance their exposure to seasonal plays with hedging strategies to mitigate sector-wide risks.