Here's something they won't tell you on Wall Street: If you're in search of investment ideas, you could do worse than to start by dropping trou.
That was the first thing that came to mind today as I began looking over Cherokee's
The first-quarter revenues and net income -- both "records" according to the release -- grew 8% and 9.9% respectively. The per-share number came in at $0.69 per diluted stub, a somewhat slimmer gain.
If you're unfamiliar with Cherokee, you don't want to confuse it with duds-making casual retailers such as American Eagle Outfitters
If you're not excited by the slow growth Cherokee is putting up these days, you may find more to like in Cherokee's free cash flow. Net margins of 46% and a slim operation mean the firm can turn most of what's earned into cash. With humongous returns on equity and assets, you might think this is the kind of company that would be ripe for the picking. And you'd be right.
At the end of January, the firm hired UBS Investment Bank to explore "strategic alternatives." So, if you don't think the stock is drop-dead cheap at 9 or 10 times free cash flow, it's certainly pretty inexpensive. And since it pays a good chunk of that cash as dividends -- with the current yield clocking in near 6% -- there are certainly worse places to park your money while waiting to see whether a buyout is on the horizon.
For related Foolishness:
If it weren't for Cherokee's small market cap and reliance on Target, Seth Jayson suspects that the Fool's Income Investor dividend hound, Mathew Emmert, would be eyeballing the stock already. See other companies that pay you to invest. A trial will cost you nada.
Seth Jayson will be dropping trou to see what other kinds of Cherokee goods he's sporting. At the time of publication, he had shares of Guess?, but no position in any other firm mentioned. View his stock holdings and Fool profile here. Fool rules are here.