If you look at bebe's (NASDAQ:BEBE) stock chart this year, you might think it's curvier than the retailer's sexy clothes. It's had its ups and downs, unlike its competitor Guess (NYSE:GES), which has had much more of an upward trajectory. Not that a chart necessarily tells any story whatsoever about the solidity of an investment's future potential, but it certainly does track investor psychology over a short-term period.

Although bebe had hot times over the summer, if we flash back to early 2006 and its fiscal second quarter, we find that its stock price had been cut in half over the course of the past year. Profit increased only modestly (3%) to $25 million, and while sales increased 10% to $167.9 million, comps increased by only 2.2%.

The following quarter was better for bebe, with earnings up 20% and sales having increased 13.6%. Comps gained by 4.7%, which might not sound too torrid until you realize it had reported a same-store sales increase of 28.5% at the same time the year before. However, at the time, investors weren't impressed with the results, likely because bebe's forward guidance only called for a slight improvement over the year before.

Things started heating up for bebe over the summer, though. Several months of impressive same-store sales gains led to fiscal fourth-quarter results in which investors liked what they saw (and obviously, bebe's previous guidance proved too conservative). Profit increased 13% to $22 million, revenues were 11.2% higher, and same-store sales increased 3.5% (versus a whopping 34.2% gain quarter over quarter).

That brings us to bebe's first quarter -- one that I thought was extremely impressive overall. Profit increased 57.1%, sales grew 24.5%, and comps increased 12.8% (up against a 17.3% increase in the same quarter the year before). However, investors bid shares down yet again (the stock fell about 13% that day) -- and likely again because of guidance that didn't fire people up.

What a year! It was a rollercoaster ride, indeed. I thought investors recently overreacted; bebe seems to do well against rivals like Guess, BCBG, and Limited's (NYSE:LTD) Express. Tom Gardner recommended bebe for Motley Fool Stock Advisor back in February 2006, seeing a well-managed company with a strong balance sheet, among other variables. Given the thesis that this is a solid retailer with plenty of room for growth, these short-term ups and downs seem to give investors many opportunities to get this stock on the cheap on volatility.

Of course, let's see what the CAPS community thinks: Is bebe hot, or not?

CAPS Rating

*** (out of five stars)

Total Bulls


Total Bears


Bull Ratio


Bear Ratio


*As of 12/15/06.

It looks as though the vast majority of the CAPS community believes bebe is a pretty Foolish investment for the long term, regardless of the short-term ups and downs over the course of the last year.

Check out this pitch from pencils2 on Dec. 1, which says a lot when it comes to for the bull case for bebe:

"I like this price both short-term and long-term. Short-term, they've been hit down for reasons that I don't think have a lot of beef behind them, and they are also coming into the holiday season, and I think they'll have a good 4Q. Long-term, this is a company with the resources to keep expanding with relatively little ease. Cash stands at $342.80 million with less than half a million in debt, they've got strong margins, a great brand name, a good management team, and the resources to keep expanding the brand over the long-term. I expect bebe to handily beat the S&P 500 over the next five years and beyond."

It will be interesting to see if bebe shares continue their volatility over the coming year. However, it does seem as if bebe's frequent ups and downs in 2006 have given investors ample opportunities to weigh the idea of adding this retailer to their portfolios.

Further Foolishness:

Check out the other companies featured in "The Motley Fool's 2006 in Review and 2007 Preview" special.

bebe is a Motley Fool Stock Advisor recommendation, as are several other retailers, as well as companies from a diverse selection of industries. Motley Fool Stock Advisorhas a return of 72%, compared to 24% from the S&P.

Time is running out for the 2006 Foolanthropy charity drive. Take a look at the five great charities chosen for this year's event, and click the links from there to make a donation today. Thanks for your support.

Alyce Lomax does not own shares of any of the companies mentioned.