Retail stocks' prices have greatly appreciated in the market's recent rally -- some, unfortunately, to a degree way out of whack with their fundamentals. These overpriced stocks will burn investors. Count bebe stores
Shares of bebe have soared 62% in the last six months; it's currently trading at 94 times forward earnings! That's the kind of multiple you'd apply to a high-growth stock, and it's bizarre that someone would buy bebe at these levels.
For comparison, you could buy tech giants such as Google
Meanwhile, bebe's business performance simply hasn't been that strong. It recently revealed that it will post a first-quarter loss (or at best, break even), owing partly to its continuing need to mark down merchandise. If you look at bebe's most recently completed fiscal year, the numbers are ugly. Sales fell 12.3%, same-store sales dropped a dismal 20.9%, and earnings fell 80%.
Even as bebe's sales and earnings growth have slowed to anemic levels in recent years, gross margin has plummeted. After peaking at 49.6% in the fiscal year ended July 2005, it's down to 40.3% now. The retailer's apparel has simply been unable to command the kind of prices it once did.
The shockingly high multiple placed on J. Crew
That argument doesn't hold for bebe. In troubled economic times, it's one of many retail stocks in desperate need of a turnaround -- and that's a tall order.
Compare bebe's waning fortunes to Buckle
Savvy stock pickers who bought bebe at its lows have undoubtedly been enjoying its upward trajectory. If you're one of them, it may be time to take the money and run. And if you weren't so lucky, steer clear.
Am I missing something significant about bebe's chances for impressive growth? Share your thoughts in the comment boxes below.