The market has been in an uptrend since October 4th. As the rally has gone along, more and more stocks are building healthier technical patterns that help support a further stock market advance. As volume has increased in the overall market, it has become obvious that retail has been a leading sector during this early market uptrend. I have profiled four retail-restaurant stocks recently showcasing the superior fundamentals and strong technicals that accompany these stocks. I want to take a look at three more retail stocks in the Apparel-Clothing Manufacturing industry group that are showcasing some extremely strong fundamental growth that should lead these stocks to much higher share prices in the near-term future.
First, let’s look at my favorite, Under Armour (UA). Under Armour is a Baltimore, MD marketer of athletic shirts, shorts, underwear and outerwear made from moisture-wicking synthetic fabrics. Under Armour’s EPS and sales growth has been explosive the past eight quarters. Sequential EPS growth the past eight quarters has grown 76%, 75%, 133%, 31%, 47%, 64%, 71%, and 29%. Sales growth has been equally impressive, with gains of 24%, 15%, 24%, 22%, 36%, 36%, 42%, and 42% the past eight quarters. Annual EPS estimates for 2011 and 2012 show no slowdown from the current numbers, with gains of 37% and 27% expected respectively. Under Armour carries a tiny 2% debt to shareholder equity, sports a 15% return on equity, and a cash flow of $1.95. The P/E ratio is in the upper half of the 5-year range of 15-79, coming in currently at 51.
However, savvy investors know the best stocks in the market with the biggest growth sport higher P/E ratio than industry peers. The strong growth above is the reason management holds 30% of the shares outstanding. Mutual funds are also in love with the financials, with mutual fund ownership growing from 325 funds to 421 funds the past eight quarters.
Another leading stock in the group is Oxford Industries (OXM). Oxford Industries is an Atlanta, GA marketer of dress shirts, suits, jeans, footwear, sportswear and accessories for men, women and children. EPS growth has been very strong, with sequential EPS growth of 100%, 191%, 17%, 700%, 98%, and 78% the past six quarters. During that same period, sales growth has come in at 5%, -1%, -2%, 10%, 27%, and 26%. EPS and sales growth is expected to expand as 2012 and 2013 annual EPS estimates are for gains of 79% and 19% respectively. Oxford Industries carries a debt to shareholder equity ratio of 82%, which is a little high, but with a return on equity of 15% and a cash flow of $2.52, the debt load is very manageable. The P/E ratio is in the lower end of its historical 5-year range of 3-53, currently standing at 20. The strong recent growth and future growth expectations is a reason management, even after all of these years, still owns 16% of the shares outstanding. Mutual fund ownership is healthy, with 297 funds owning 55% of the float.
Finally, let’s take a look at a new issue in the Apparel-Clothing Manufacturer industry group. Vera Bradley (VRA) is a Fort Wayne, IN marketer of handbags and accessories for women via 3,300 independent retailers and 35 full-price company-owned stores. Vera Bradley’s EPS and sales growth have been very steady the past eight quarters. Sequential EPS growth has been 999%, 72%, 39%, 64%, -31%, -19%, 12%, and 48% These gains are made possible by sales growth of 25%, 32%, 19%, 34%, 26%, 29%, 19%, and 30% the past eight quarters. This growth is not expected to slow down, with annual EPS estimates for gains of 30% and 20% respectively for 2012 and 2013. The debt to shareholder equity is a high 102%, but with a return on equity of 60% and a cash flow of $1.26, I don’t see this as a long term operating issue. The P/E ratio stands at 38, which is in the higher end of the 19-46 range it has recorded over its short life. Based on future earnings estimates, this is not an issue with me. Clearly, the high P/E ratio is a non-issue for management also, as they own 51% of the shares outstanding, indicating they are vested in this company and its future potential returns. Mutual funds see the growth opportunities as well, with mutual fund ownership growing from 162 funds to 257 funds the past four quarters.
The exciting fundamentals in these Apparel-Clothing Manufacturing stocks make them buys here based on future projections. However, fundamentals alone should never be used to buy stocks. For the best reward/risk opportunities, technicals must be observed. With regard to the current technical patterns, only Under Armour has produced a buy signal breaking out of a three-month consolidation to a new 52-week high on very strong volume. Oxford Industries is currently creating a very long base that has lasted a little over five months. A breakout to a new 52-week high on very strong volume would flash a buy signal. Vera Bradley is still working on the right side of its five month base and needs time to consolidate to help get the 50 day moving average above the 200 day moving average before it can be considered a long. If it can then form a handle to a cup with handle pattern and break out on heavy volume, it would trigger a long signal. Other areas to add to the stocks, once they breakout, include higher volume bounces off the 50 day moving averages that are preceded by low volume pullbacks. The other area would be a pocket-pivot point buy signal with a move off the 10 day moving average with the volume being higher than any volume on a down session during the past 10 days.
Disclosure: I am long UA.