Gymboree Needs Aretha

What does Gymboree (Nasdaq: GYMB  ) CEO Matt McCauley have to do to get some respect on Wall Street?

When he took over the children's clothing retailer in 2006, Gymboree was a profitable but unexciting business that played second fiddle to the faster-growing Children's Place (Nasdaq: PLCE  ) in many ways. Today, the Place ain't the place to be anymore, unprofitable and falling out of the once-promising Disney (NYSE: DIS  ) Store deal. Gymboree, on the other hand, has doubled its return on capital, improved every margin, and reignited sales growth. Which stock would you rather own?

Yet, after this week's earnings report, with $206 million in sales (13% growth, year over year) and $0.27 of earnings per share (42% better), Gymbo the Clown still can't get a hug from Mr. Market or our CAPS Fools:

Company

Market Cap
(in millions)

Trailing P/E Ratio

CAPS Rating

Target (NYSE: TGT  )

$39,430

15.6

***

Gap (NYSE: GPS  )

$14,460

17.1

*

The Children's Place

$1,210

N/A

**

Gymboree

$1,080

13.0

**

Target and Gap haven't exactly burned up the sales charts lately, yet they command higher relative valuations than Gymboree. Children's Place isn't even profitable over the trailing 12 months, despite a small net income this quarter, yet it gets fitted for a bigger cap than its more consistent rival Gymboree.

Well, my Gymboree stock may be 18% underwater since I bought into McCauley's promise 18 months ago, but I'm not ready to give up on this stock yet. The company still hasn't figured out how to get the most out of its chain of Play & Music class franchisees, and I don't see Gymboree getting a fair shake for what it actually has accomplished.

I'm holding on and waiting for the market to come to its senses. It has to happen someday, as long as McCauley keeps showing his considerable operating prowess.

Further Foolishness:

Gap is a Motley Fool Inside Value selection. Gap and Walt Disney are Stock Advisor recommendations. Try any of our Foolish newsletters today, free for 30 days. We're not just playing in the market. We're in it to win.

Fool contributor Anders Bylund owns shares of Disney and Gymboree, but holds no other position in any of the companies discussed here. You can check out Anders' holdings if you like, and Foolish disclosure demands some R-E-S-P-E-C-T!


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