Apparel retail is getting cheap -- but is it cheap enough? Value investors everywhere are wringing their hands over that question.

Many of these companies are trading at single-digit P/Es with strong balance sheets. But with a weak economy and a looming war, business at the mall isn't looking too hot for the foreseeable future. Deb Shops(Nasdaq: DEBS) is a perfect case in point.

The 327-store teen fashion retailer today said 2003 sales are likely to be flat with last year's. Worse yet, management said earnings will drop some 30%. That came as especially bad news considering the market was anticipating earnings growth of 8%. Predictably, the stock is getting hammered today, down about 9%.

But if any apparel retailer is equipped to survive this downturn, it's Deb Shops. This isn't a go-go growth retailer; management adds stores only on an opportunistic basis. This cautious approach to growth has allowed Deb to generate consistently positive free cash flow on a quarterly basis for the past several years. With the steady inflow of cash and no debt to pay, Deb has amassed a cash hoard equal to $11.15 per share -- accounting for more than 60% of its market value.

And let's not forget that even though times are tough and profit forecasts are down, Deb still expects to remain profitable this coming year. Management said today it expects earnings for 2003 (technically fiscal 2004, ending January '04) to come in at $1.25 to $1.30 per share. With Deb trading at $17.60, that's a surface P/E of around 13.8. But when you subtract cash from the stock price, you get an enterprise value (EV) per share of $6.45 ($17.60 - $11.15). On an EV-to-earnings basis, Deb trades at a multiple of only 5. That's an especially low price when you consider that these are depressed earnings.

But is it enough of a value to take the plunge? Perhaps. Gutsy investors might want to hold their noses and swallow hard, given the current low price. More choosy investors, however, might want to wait for management to announce a share buyback, or, better yet, for management to buy shares for its own accounts. Another positive catalyst that might merit pulling the trigger would be a reversal of the negative monthly same-store sales that have afflicted Deb for six out of the past seven months.

In any case, Deb is definitely a value stock to keep an eye on.