The market has not been very kind to retailers over the past year.

Were the macro-events like rising gas prices (which have been rapidly falling -- recently to less than $2.00 in my neck of the woods), a housing bubble deflating and putting pressure on disposable income, or worries about the overall health of the U.S. economy driving prices down? Or were the troubles due to business missteps along the way? Was it both?

Whatever the reason, the stock prices of many retailers have fallen precipitously. And that's what gets value investors like me interested.

From the A-list to the D-list
So to see whether I can find some treasures in the bargain bin, I decided to run a screen to find the companies with the largest declines relative to their 52-week-high stock prices. From there, I'll give you my thoughts on six that made the list.

To make the comparisons, I first needed some comparison criteria. (I'm a numbers guy by trade.) I want to get a sense of how far these retailers have fallen and whether they are likely to get back up and join the race. To do that, I decided to look at their total enterprise value-to-EBITDA (TEV/EBITDA) ratios at their peak versus today, as well as their returns on invested capital (ROIC), which I adjust to account for all of the operating leases that these companies use.

The criteria
Why TEV/EBITDA? It's a decent proxy for how much investors are paying to own the business. And I'm not so focused on the absolute value for each company as much as I want to see how much each one has fallen over the past year. That way, we'll have an idea of how overvalued the stock may have been at its peak and get a sense for how far it has fallen.

No matter what your level of investing experience, ROIC should be a ratio you calculate any time you analyze a company, because good ROIC performance is what you're most interested in as an investor. You want to know whether a company can take shareholders' capital and use it to generate returns. That's what you're doing when you invest, right?

The results
Below are the results of my screen, which are sorted by the stock price as a percentage of its 52-week high. The lower the number, the further it has dropped.


% of 52-Week High




Finish Line (NASDAQ:FINL)





Citi Trends (NASDAQ:CTRN)





Pier 1





Urban Outfitters (NASDAQ:URBN)










Chico's FAS (NYSE:CHS)





That list containts some familiar names and maybe some not-so-familiar ones. Let me give you my opinion of what to do next.

"Struggling" is probably the polite way of describing athletic-apparel retailer Finish Line and home-furnishings-and-decor peddler Pier 1. The latter has been destroying value for quite some time -- that "N/A" in the ROIC column means the value was negative at Pier 1. That's never good. And Finish Line, even with its ups and downs, is certainly not creating lots of value, given that its ROIC is probably very close to its cost of capital.

My vote? Just pass these companies up. For a value investor, anything can be bought at the right price -- and Finish Line's price does look very tempting at these levels. But what am I getting for these prices? I am definitely not getting the chance to own businesses that have generated meaningful, consistent performance over time. And while I love a good turnaround opportunity (apparently, some investors see exactly that in Finish Line), these businesses seem to be constantly operating in turnaround mode. Let someone take the hassle and the risk. I'll pass.

Need to learn more
I recently wrote about Texas-based electronics retailer Conn's, so I won't go into to too much detail here. But despite not liking its reliance on its financing unit, I am intrigued and need to learn more. From the table above, you can see it's taken a huge hit and has pretty good returns. I think Conn's is one to monitor.

I don't know much about Citi Trends. But that's going to change. Anytime you see a company generating returns of close to 20%, take note. That company is doing something good, and you need to find out why.

I do know that Citi Trends sells a wide assortments of urban fashions and accessories to men, women, and children (OK, that pretty much covers everyone), and its main demographic is the African-American consumer. It sells off-price products, similar to TJX's (NYSE:TJX) TJ Maxx and Marshalls. It does have a high short interest, but those returns, along with its growth potential -- it operates only about 250 stores today -- are compelling. A cheaper price tag would be nice, so I'll study while I wait. Isn't that always the way for a value investor?

Ones to consider today
Urban Outfitters and Chico's FAS are two retailers I have my eye on today. I like the Urban Outfitters concept; the company focuses on styles for young adults that correspond with city life. But I like the Anthropologie even more. Anthropologie focuses on women who have money, and in my book, that's a great customer to go after. The stores are nice, and so is the merchandise. And it's hard to argue with its returns and its growth prospects. The stock price has fallen plenty, and it faces lots of competition going forward -- that 25- to 40-year-old female-with-money demographic is a popular one today. But even so, I still think Anthropologie offers a decent value at today's prices.

Chico's is very intriguing at current levels as well. Let me give you something to think about: The company recently ended its nine-year streak of increasing same-store sales. Nine years! That's an amazing record.

The company's decline to its current levels gave lots of people lots of ammunition to say that Chico's has moved past its prime, and in fact, sentiment in the analyst community continues to decline as well. Couple that with a merchandising misstep this year that management acknowledged, as well as some revised near-term expectations, and I think you can see why the market soured on this women's-clothing retailer. Unrealistic expectations were built into the stock price at the peak, and I think the expectation pendulum has swung too far on the way down.

The Foolish upshot
Like many investments, the key to success in generating returns from retailers is to buy good ones when they suffer a misstep. (From the data above, you can see it's not a good idea to buy during the euphoria.) While retail investing is certainly not for everyone, it can be profitable for those willing to go against the grain. And as a value investor who doesn't mind going against the grain, I'll keep you informed of any opportunities I find.

No one can accuse Inside Value lead analyst Philip Durell of being with the in-crowd. He's willing to go against the grain when he sees a bargain opportunity and is beating the market in the process. To see how he's doing it, take a free 30-day trial today.

Retail editor and Inside Value team member David Meier loves a good bargain, thanks to his wife and the writings of Ben Graham. He does not own shares in any of the companies mentioned. You can view his profile. The Fool takes its disclosure policy very seriously.