Grab a Teenager and Buy Some Stocks
Candice is a member of The Motley Fool Blog Network -- entries represent the personal opinion of the blogger and are not formally edited.
If I use an investing strategy borrowed from Peter Lynch and go to the mall, what do I find new and exciting companies? My teenagers, fickle bunch that they are, are regular mall attendees and have their so-called fingers on the pulse of the shopping circuit.
The tried and tested is Abercrombie & Fitch (NYSE: ANF). I dutifully offer to swing by the Abercombie & Fitch store, but recently have gotten a lackluster reply from my teens. The company, however, still seems to have a healthy net margin of almost 12% with low long-term debt and no short-term debt. After dropping slightly in the fiscal year ending in Jan. 2012, its net income has almost doubled -- it seems to manage just fine without the patronage of my teenagers. It also has a small dividend, below 2%.
American Eagle (NYSE: AEO) is very much the mainstay in my household. My son is always a fan of soft clothes and since he has outgrown most boys stores, he now gravitates toward the trendy clothes at American Eagle (and so do most of his friends). American Eagle has a leaner net margin at about 8%, but still has a healthy return on equity and no debt. Its dividend is a little brighter at just over 2%.
Urban Outfitters (NASDAQ: URBN) seems to be the up and comer, as far as the teenagers are concerned, but I have gone to the stores for years. The company also owns Anthropologie. Its net margin is not as enticing as Abercrombie but it also has no debt, which does give one a bit more security. Urban Outfitters does not repay shareholders regularly with a dividend and its earning growth is sluggish compared with the American Eagle and Abercrombie & Fitch stocks, which posted great growth rates over last fiscal year. Another chink in the armor is a P/E of almost 25.
The teenage fashion store that intrigues me the most is Buckle (NYSE: BKE). Although it has been in business since 1948 and has been public since 1992, its origins are in Nebraska, so the message is just now starting to reach teenagers on the East Coast. The net margin is a leader at about 17 and it is still without debt. It has a small dividend, much like Abercrombie, but the return on equity leads the bunch at over 60%. Its earning growth is not as impressive year over year, but since it is a growing company as opposed to a more mature brand, its net income is reaching new highs as opposed to nearing or regaining previous highs.
Overall, these stores and brands are solid businesses with good balance sheets. The differences mainly lie in their stage of maturity and potential for growth -- a far more subtle thing to measure. To pick, go do some research of your own: grab a teenager and head for the mall.
Candice Munroe has no position in any stocks mentioned. The Motley Fool recommends The Buckle. The Motley Fool owns shares of The Buckle. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!