A 99 Cents Solution?

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Deep-discount retailer 99 Cents Only Stores (NYSE: NDN) dropped 8% this morning on news of an SEC inquiry and the delayed release of fourth-quarter earnings. Though the stock recovered by the end of the day, investors must be asking, "Is it time to cash out?"

Any SEC investigation is a concern; however, this particular probe pertains to the accounting of the disposition of Universal International back in 2000. Further, since any potential impacts will be of a non-cash nature, the proceedings should not overly concern long-term investors.

Perhaps a more pressing question is how 99 Cents Only stacks up against dollar-store peers Dollar General (NYSE: DG), Dollar Tree (Nasdaq: DLTR), and Family Dollar (NYSE: FDO) -- all of which also enjoy excellent operating and profit margins. Or, how about bigger players like Costco (Nasdaq: COST), Target (NYSE: TGT), and Wal-Mart (NYSE: WMT)?

Pretty darn well, it turns out. Of the entire group, 99 Cents Only offers the best operating and profit margins. It's also free of debt, something only Family Dollar, among these others, can say. At 30 times earnings, 99 Cents Only trades at a premium to the group, but given its rapid store openings and strong margins, perhaps it should.

Beyond the scent of scandal, long-term investors should sense a long-term growth story here. Rather than follow those running from the stock -- and thereby sending it lower -- shrewd investors might want to stay cool and ask themselves, "Is the price right?"

To discuss 99 Cents Only Stores (or any of the other retailers mentioned here) with other investors, visit the Motley Fool discussion boards. For a 30-day free trial to the discussion boards, click here. You can e-mail W.D. Crotty via email.