Kids' apparel retailer Children's Place (NASDAQ:PLCE) reported banner sales results for March this morning. Sales of $97 million were up 26% over March 2003. And comparable store sales, which had been down 11% in March 2003, were up 17% this March. The past two months' results were even better: sales up 29% and comps up 20% versus a 16% decline in comps for February and March 2003.

As a result, the company is now predicting that it will top Street estimates for its first-quarter earnings by a couple of pennies, earning $0.42 per diluted share -- twice what it earned in the first quarter of 2003.

Excellent results all around. But the stock has fallen over 4% today already on the news. (And if you peek next door at Gymboree (NASDAQ:GYMB), similar but slightly less impressive results were also announced today and are having the same effect.) Is the market off its rocker? I say yes.

Children's Place has an enterprise value of $745 million and free cash flow of $28 million, yielding an EV/FCF ratio of 26.6. While that is not exactly a bargain price, when you consider that analysts expect the company to grow its earnings by 15% over the next five years, a little faster than the retail industry in general, this yields an EV/FCF/growth ratio of roughly 1.8. That is actually a slight discount to the valuation of the market in general.

Moreover, 16.75% of Children's Place's float is sold short. Now, while I hardly expect a screaming mob of newly minted parents to break down the doors of their local brokerage office trying to buy stock in Children's Place at its current price, neither does the company look like a particularly good short candidate.

The company is valued at a slight discount to the market, it maintains positive free cash flow, and it has no long-term debt on its books. It just does not seem prudent to short a company that, while not obviously undervalued, is also not overvalued, has no debt concerns, and is making plenty of cash.

And as for today's sell-off on what certainly seems to be nothing but good news for the company, and on a day when most market indices are rising to boot... I can only repeat: The market is hardly rational.

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Fool contributor Rich Smith owns no shares in any of the companies mentioned in this article.