Guess (GES) holders have had a roller coaster ride in its shares over the last few months. However, this cheap retailer looks like it has bottomed, has some positive catalysts and this former highflyer should reward patient investors as growth resumes in 2013.
Recent positive news:
- It announced it has added $500mm to its share repurchase program. This represents approximately of Guess' total float at current prices.
- After falling for months, consensus earnings estimates for FY2012 and FY2013 have stabilized over the last week or two.
- Falling gas prices over the last few months should start to show up in consumer spending figures, which should help the retailing sector.
- The stock looks like it has finally bottomed and is showing strength lately (See Chart)
"Guess Inc. designs, markets, distributes, and licenses lifestyle collections of contemporary apparel and accessories for men, women, and children that reflect the American lifestyle and European fashion sensibilities." (Business description from Yahoo Finance)
4 reasons GES will reward patient investors at $29 a share:
- The company has a robust balance sheet with over $500mm in net cash on the books and provides a solid 2.8% and the company has increased its payout substantially over the past five years.
- GES is selling at the bottom of its five year valuation range based on P/S, P/E, P/CF and P/B.
- The stock is selling at less than 10 times forward earnings, a discount to its five year average (13.8). It also has a five year projected PEG of under 1 (.95).
- GES goes for 7 times operating cash flow and the median analysts' price target for the nine analysts that cover the stock is $35 a share.