1-Star Stocks Poised to Plunge: Hot Topic?

Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, specialty retailer Hot Topic (Nasdaq: HOTT  ) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at Hot Topic's business and see what CAPS investors are saying about the stock right now.

Hot Topic facts

Headquarters (Founded) City of Industry, Calif. (1988)
Market Cap $385.6 million
Industry Apparel retail
Trailing-12-Month Revenue $715.1 million
Management Chairman/CEO Lisa Harper
CFO James McGinty
Return on Equity (Average, Past 3 Years) 1.2%
Cash/Debt $63.6 million / $0
Dividend Yield 3.6%
Competitors Abercrombie & Fitch
Forever 21
Wet Seal

Sources: S&P Capital IQ and Motley Fool CAPS.

On CAPS, 46% of the 386 members who have rated Hot Topic believe the stock will underperform the S&P 500 going forward.

Just last week, one of those Fools, jed71, succinctly summed up the Hot Topic bear case for our community:

[T]his is a very high price for a very risky stock. Trading at 27 times earnings and 13 times cash flows. This company is attempting to compete in a very tough industry. In addition, teen and young adult unemployment continue to be at very high levels across the country. Do they really have the extra $$ to spend in stores such as this? My guess is no but maybe Mommy and Daddy are making up for the lack of cash in most teens' pockets.

I expect margins to continue to get squeezed across the clothing industry. Mostly due to higher cotton and material costs (driven by high soft commodity and oil prices). I did not look at their website for long but it looks very grungy and maybe a little Goth. How many teens still adhere to this style?

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Fool contributor Brian Pacampara owns no position in any of the companies mentioned. 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 Fool's disclosure policy always gets a perfect score.


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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.

  • Report this Comment On September 18, 2012, at 9:10 AM, drbtrades wrote:

    At least quote a motley fool member with a good track record.... "Jed71" has an absolutely abysmal score card on picking stocks...

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