Apparel company Wet Seal
A year ago, revenue was falling, same-store sales were in decline, and the CEO was actually demoted to the board. There was talk of a bankruptcy to help the company sort out its problems. A two-year chart shows the stock's steep decline, followed by a slow recovery as new management got introduced, stores were closed, and financing was set in place to get the company moving.
The big news of the day was $4.2 million in operating income. That's not quite a surprise, since the quarter's monthly same-store sales increases were whoppers -- up 56.9%, 59.3%, and 50.9%, respectively, for the months of May through July.
But those hoping for reassuring words about the quarters ahead will be disappointed -- the company gave no forward guidance.
While the company has $65.1 million in cash, it has come at a price. Diluted shares increased from 32.1 million to 40.4 million over the year-ago quarter. Analysts following the company do not expect a profit this fiscal year (ending in January) and see only $0.21 falling to the bottom line in fiscal year 2006 -- a 25.5 forward P/E ratio. That's high for a company that has, at least for now, just managed to tiptoe past the bankruptcy reorganization graveyard.
There are plenty of alternatives to this troubled retailer. Motley Fool Stock Advisor pick Gap
Wet Seal looks cheap at $5.36 a share. If it can meet analysts' expectations for earnings growth through 2006, the multiple doesn't look all that expensive. But I'm not sure I like the current valuation for a troubled company in transition, especially when its best-in-class competitors all sport a lower P/E.
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