Perry Ellis: Bargain Stock

I hate shopping for clothes (disclaimer: I’m a guy). Something about going to the mall, browsing, and trying things on makes me feel like I’m wasting my time. I seem to be living my life just fine without new clothes, so why do I need new threads? Granted, this sometimes makes me look like a schlub, but whatever. My wife, however, likes to go places with a husband instead of a dork dressed in acid-washed jeans and a Members Only jacket. So I try to shop, but it’s hard for me.

A couple of years ago, we went to an outlet mall and one of the stores there was Perry Ellis (PERY). The brand sounded familiar, but it was the first time I ever saw a whole store devoted to just its clothing. I reluctantly went inside, but I immediately found a bunch of stuff I liked. I tried some shirts on and they fit great—no small feat for someone with my body type (think Michael Phelps without the muscle or adoring throngs of ladies).

Now I was actually having fun putting together outfits, looking at jackets, and so on. I bought a whole bunch of stuff and didn’t even feel that guilty about spending the money on clothing. These duds fit right, they felt good, and it all looked nice. And overall the prices were better than anything I would’ve gotten anywhere else.

Then I found out Perry Ellis is a public company, so I started to do some research and found out some interesting stuff:

• It’s a small company ($86 million market cap), so it has plenty of room to grow.
• It owns tons of brands: John Henry, Penguin, and Havanera are just some of them.
• It belongs to the S&P SmallCap 600 Index.
• It sells Nike (NKE) swimsuits, PING golf apparel, and Dockers outerwear.
• Its stock is near its all-time low (join the club, right?) and its P/E ratio (4) is lower than the industry average (9), and lower than competitor Polo (RL), which stands at 9. This means you’re paying less for PERY’s earnings that its competitors.

Not only that, I took the time to visit its site, read its latest annual report and 10-Q, and read a presentation the company gave at a Wachovia securities conference where representatives talked about how the company is doing and what it’s doing. I liked what I saw.

Am I ready to put real money into Perry Ellis? Not yet—but I’m ready to spend some hard-earned WeSeed money to see if my instincts and research prove to be on target. The lesson here? If investing sounds like about as fun as shopping was to me—don’t worry, there’s hope.

Disclosure: No positions.

Comments

[mpharbold1:]

BEWARE!

total cash 7.73 million
total debt 222.39 million

Companies loaded with debt are dangerous when credit is tight.

Jan 08 08:58 AM

[Carlos Port...:]

That's a valid point... what else do you think of PERY besides that off-balanced debt load?

Jan 08 04:40 PM

[mpharbold1:]

I used to trade PERY and I did ok with it. But the landscape has changed. Today, I wouldn't buy any company loaded with debt that is directly tied to the consumer. The off-balanced debt load is enough to keep me away.

I like some of their clothes and if you want to get some good Perry Ellis clothes for a good price, shop on ebay. But, I wouldn't buy the stock in this environment.

If you want a good stock tied to the consumer, check out PSMT. Pricesmart has more cash than debt, growing earnings, and incredible same store sales comparisons. They do not rely on the U.S. consumer.

Jan 09 03:58 PM

[peryguy:]

But their debt is not due till 2012/13 and they have a revolving credit they can tap. Plus their assets are worth more than enterprise value, even in this environment. Note they are not losing money and perry ellis clothing targets middle-class meaning, rich will be buying, middle class will and lower class will start buying as clothes are cheap


On Jan 08 08:58 AM mpharbold1 wrote:

> BEWARE!
>
> total cash 7.73 million
> total debt 222.39 million
>
> Companies loaded with debt are dangerous when credit is tight.

Feb 09 04:55 PM