Mr. Bowman is a portfolio manager at Hamilton-based Wickham Investment Counsel Inc., an adviser to high-net-worth clients.
What are we looking for?
U.S. consumer sentiment unexpectedly climbed in August to the highest level in almost seven years, according to Bloomberg, reinforcing signs of a strengthening outlook for the second half of 2014. With more discretionary cash floating around, the specialty apparel sector may be moving into the sweet spot.
The screen
My colleague Rob Belanger and I started with companies larger than $500-million (U.S.) in capitalization and sorted them from the largest to the smallest.
The EV/EBITDA (enterprise value divided by the earnings before interest, taxes, depreciation and amortization) is a value ratio that looks at a firm the way a potential acquirer would because it includes debt. A low number is preferred.
Price to sales is another indicator of value and a ratio higher than the average may indicate an overvalued company.
We also are showing sales growth over the past 12 months, which had to be positive.
Net income margin is net income divided by revenue. Companies with higher margins are more profitable and have better control over costs than their competitors. Only companies with positive margins are shown.
Current ratio is current assets divided by current liabilities, and the higher the ratio the more capable the company is of paying its obligations. We have not included any ratios under one because such a reading would suggest that a company would be unable to pay off its obligations if they came due immediately.
Inventory turnover shows how many times a company's inventory was sold and replaced over the past 12 months.
What did we find?
One company outperformed the averages in five of the six categories. Francesca's Holdings Corp. operates 531 upscale women's boutiques across 47 states, catering to the 18- to 35-year-old crowd.
Three companies came in better than the averages in four of the six categories. Buckle Inc. is a leading retailer for fashion conscious young men and women operating 430 stores across 43 states.
Hipster clothing chain Urban Outfitters Inc., which operates 130 stores in North America and Europe, has a history of stocking controversial items. (Earlier this month Kent State University, the site of a shooting in 1970 that killed four students, criticized the retailer for selling a sweatshirt with its college logo that appears to be bloodstained. The retailer has since withdrawn the item.)
Gap Inc., founded in San Francisco in 1969 (when jeans sold for $7), has almost 3,600 stores around the world.
Contact an investment professional or conduct further research before buying any of the companies mentioned here.