This Just In: Upgrades and Downgrades

At the Motley Fool, we poke plenty of fun at Wall Street analysts and their endless cycle of upgrades, downgrades, and "initiating coverage at neutral." So you might think we'd be the last people to give virtual ink to such "news." And we would be -- if that were all we did.

But in "This Just In," we don't simply tell you what the analysts said. We'll also show you whether they know what they're talking about. To help, we've enlisted Motley Fool CAPS, our tool for rating stocks and analysts alike. With CAPS, we'll be tracking the long-term performance of Wall Street's best and brightest -- and worst and sorriest, too.

And speaking of the worst ...
Grand news for Zumiez (Nasdaq: ZUMZ) investors this week: Wall Street hates your stock.

Well, not the entire Street. Actually, just two of the worst analysts on the block were downgrading Zumiez yesterday -- Piper Jaffray and Susquehanna International. On Thursday, these analysts performed synchronized downgrades (not yet an Olympic sport, but fingers crossed for 2012) on the stock, with each replacing its former "buy" rating with a "neutral" tag.

Why is this good news for shareholders of Zumiez, which is a Motley Fool Hidden Gems pick? Well, if you check their records on CAPS, you'll see that both Piper and Susquehanna have negative scores and sub-50% records for accuracy. Or in plain English, on balance, their picks underperform the S&P 500, and they guess wrong considerably more often than right. For example:

Piper Jaffray:

CAPS rating: "Under 20"

Accuracy: 39%

Susquehanna International:

CAPS rating: "Under 20"

Accuracy: 45%

The technical term for what you see above is "contrarian indicator." And when you see a contrarian indicator zig, you zag. Personally, I've never owned Zumiez, but I'm getting mighty interested in owning it today -- and I want to thank Piper and Susquehanna for clueing me in to this buying opportunity with their downgrades.

Of course, the downgrades alone don't attract me -- if that were the case, I'd prefer to see these analysts knock Zumiez all the way to "sell" before jumping in. I also like what caused the downgrades, and yesterday's sell-off came after Zumiez reported a mere one-month decline in same-store sales.

In the grand scheme of things, four week's sales don't make much difference to a company's long-term potential as an investment -- but hey, if Wall Street wants to lop 18% off of a stock's market cap based on 28 days' performance, I'm happy to claim the discount.

Foolish takeaway
And what a discount it is! Based on today's price, Zumiez has a 17.5 trailing P/E and a forward P/E of 15.2 for this calendar year. Weighed against long-term projected annual profits growth of nearly 25%, that price looks mighty attractive to me.

Throw in 40% short interest in the stock, and you've got the potential for any good news whatever to send this stock flying -- then continue flying if the performance warrants. Put it all together, and Zumiez looks like a long-term winner to me.