Ditch This Overpriced Retail Stock

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The market's recent rally has sent many retail stocks on a wild ride. But their lofty new heights have left many vastly overpriced, especially in a market full of fickle shoppers. As one of the priciest stocks in the retail sector, I think buyers should beware J. Crew (NYSE: JCG).

J. Crew's stock has skyrocketed more than 60% over the last six months. Perhaps investors have been heartened by first lady Michelle Obama's apparent fondness for J. Crew outfits. However nice that may be for the retailer's brand, it's still no reason for the stock to trade at a nosebleed-inducing 44 times earnings.

Though J. Crew has remained profitable, it hasn't been doing that well. Let's compare its actual performance with that of a few other mall-based retailers:

Company	Earnings-Per-Share Growth (TTM)	Sales Growth (TTM)	Price-to-Earnings Ratio
J. Crew	(57.1%)	4.0%	44
Aeropostale (NYSE: ARO)	31.1%	18.5%	15
Buckle (NYSE: BKE)	36.7%	26.2%	11
Hot Topic (Nasdaq: HOTT)	44.6%	6.5%	16
American Eagle Outfitters (NYSE: AEO)	(55.2%)	(4.0%)	20

All data from Yahoo! Finance and Capital IQ as of Aug. 12, 2009.

As you can tell, J. Crew's trading at a major premium to the retail peers outlined above, especially given its declining profitability and staid single-digit revenue growth. The premium that investors have given J. Crew seems better suited to a gold-standard tech stock such as Amazon.com (Nasdaq: AMZN), which has proven its power to generate unprecedented levels of growth in online retail.

Remember, Hot Topic also traded at dizzying premiums not too long ago. Now that it's losing business momentum, its share price has cooled off considerably. Meanwhile, Buckle and Aeropostale look incredibly appetizing, with their relatively low P/E ratios and debt-free balance sheets.

J. Crew doesn't belong on a retail deathwatch, unlike some of the market's more debt-laden and struggling retailers. Still, the company's stock looks way too expensive when compared with bargain-priced retail rivals with impressively resilient performance.

If you think J. Crew's enough of a class act to warrant its crazy stock price, we'd like to hear your thesis. Feel free to sound off in the comments box below.