Bebe Stores Still Looks Awfully Attractive (BEBE)

| About: bebe stores, (BEBE)

Tonight, I go back to my roots a little bit. Just a little. Back to the engineer in me who knew nothing about fundamental analysis -- and then we'll support my idea with some fundamentals.

The photo to the left sure isn't me. I'm not female, and if I were I still probably wouldn't be that attractive. Never mind that -- the photo depicts an example of the clothes sold at one of my favorite retail stocks -- bebe stores inc. (BEBE). I have posted about BEBE before. This one has been a winner -- here's a chart that should hopefully speak a few words (click to enlarge):

Now to a quick look at some ratios. BEBE got cheap on a multiple basis in January, dipping below 19 times next year's expected earnings, considering that it's growing at 20+ percent. So I got long before the last report and got the "surprise" that was expected (expectations had been beaten down presumably because of the pessimism surrounding the stock). Now, the stock has retraced to the level it was at immediately after that "surprise" - probably because of general economic news and market performance. Now BEBE is back to trading back at 22x next year's expected earnings. Of course, if the economy does go to pot, then next year's earnings are probably over-estimated and BEBE will not perform well. Thus, this isn't quite as good as the sub-19 P/E for next year's earnings we got a mere 6 weeks ago, but it's still awfully attractive.

And compared to the rest of the market, it looks like we are getting another chance at a stock that's gettin' dissed. My take on this lack of respect is quite simple. Until late '03, BEBE had a great history of missing earnings expectations. "What!?" You say!!! "I don't want my stocks to do a whole lot of that!" But, since its current CEO, Gregory Scott (and much of the management team) took over in early '04, the company had beaten every single quarter until two quarters ago. At that time, expecations had gotten rather high, and BEBE was no bargain. But then the market overreacted on the miss and sent the shares from a pricey $31 to nearly $13. The bottom line is that BEBE has had a much better earnings stability track record under this regime and times have been lucrative.

With BEBE back near $17 and 22 times next year's earnings, the stock looks attractive - with probably more upside than down.

(photo: bebe stores website)

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