Helen of Troy Suffering from a Trojan Horse?

Helen of Troy (HELE) is a great company with good brands in the right business and doing a great job running its business frugally. However, in uncertain economic times, investors tend to stay away from consumer goods importers, like HELE. Such companies tend to be more susceptible to having their margins fall, as the consumer gets squeezed by a persistent economic winter. (I expect it to be a long one.) By the time economic activity picks up, some of HELE competitors may even be forced out of business (although I expect HELE to persevere).

Fear is exactly why shares of HELE were discounted to such ridiculously and unexpectedly low levels over most of the past 9 months. Better than expected quarterly results announced 10 days ago, coupled with a fall back in oil prices from their recent highs and an associated market relief rally, especially in the consumer sector this week have propelled HELE shares back to reasonable risk-reward levels. I might also add that HELE did exceptionally well and demand for the company's products kept up, even as prices were raised.

On the other hand, with further deteriorating economic and market conditions a distinct possibility, a major risk for HELE is a significant drop in demand in its traditional licensed brand personal care business. If this happens, while the market is generally downbeat, HELE's share price will be decimated once again.

At this point in the economic cycle, I saw it prudent to continue increasing my cash position. Selling Helen of Troy LTD on July 17, 2008 at $19.91, after holding it for a little over 9 months, at only 3% above purchase price (not accounting for commissions) was the right way to do it. While this was still better than holding the money in the bank, I would consider having purchased HELE in October a mistake.

Disclosure: None.