A Retailer That Looks Like a Possible Buy

Women's specialty apparel retailer Ascena (Nasdaq: ASNA  ) has been doing very well lately. But apart from its strong quarterly results, there are other aspects that make it even more appealing from an investment standpoint.

Growth through expansion
Ascena performed well in Q4, posting 13.2% earnings growth on an adjusted basis over this quarter last year. The adjusted figure basically excludes one-time costs, such as those related to Ascena's merger with the Justice clothing-store brand, expansion of its operations in Canada, and debt reduction. Net sales also got a boost from favorable comps and an increase in e-commerce sales.

Ascena has been expanding through acquisitions recently. Its recent merger with Justice has worked out well, and management recently reported that the company has the resources to pursue additional acquisitions. Ascena is planning to open at least 125 new locations, which would push the total store count to 2,600 stores even after the planned closing of approximately 30 outlets.

Is Ascena cheap?
The trailing and forward P/E suggest that Ascena looks fairly cheap compared with its peers.

Company

Trailing P/E

Forward P/E

PEG

Ascena 13.3 9.6 0.8
Bebe (Nasdaq: BEBE  ) N/A 21.2 1.4
Ann (NYSE: ANN  ) 17.7 12.0 1.0
Kohl's (NYSE: KSS  ) 13.1 10.1 0.9

Source: S&P Capital IQ.

The PEG ratio divides the P/E by a company's estimated five-year growth rate. Lower is better, and at 0.8, Ascena has the lowest ratio among its industry peers. So Ascena might even be undervalued, particularly if its growth plans pan out.

The Foolish bottom line
Despite a recent share-price tumble, Ascena is worth keeping an eye on, especially given its growth prospects and the fact that the company seems somewhat undervalued. Its growth prospects may not really have been factored in to its share price.

Fool contributor Navneet Bajaj owns no shares of any of the companies mentioned in this article. Try any of our Foolish newsletter services free for 30 days. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.


Read/Post Comments (0) | Recommend This Article (4)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

Be the first one to comment on this article.

DocumentId: 1574912, ~/Articles/ArticleHandler.aspx, 4/20/2014 7:29:08 AM

Report This Comment

Use this area to report a comment that you believe is in violation of the community guidelines. Our team will review the entry and take any appropriate action.

Sending report...


Advertisement