Sizing up Joe's Jeans
Joe's Jeans (JOEZ) is well fitted to join the undervalued club at $1.08 with an analyst earnings estimate for .13 cents for 2012. At today's levels we are looking at a forward P/E of 8.3. The latest earnings conference call highlighted that managment was confident that higher cotton prices would not be material since they can be passed onto the customer. Joe's sells high end jeans and apparel primarily over $100 making them less vulnerable to rising commodity prices. Also management noted on the call that cheaper sourcing is due to come online in the near future from a new country.
Joe's store count is scheduled to grow around ten locations a year for the next two years as revenue growth should spur solid bottom line growth. I'm going to conservatively assume they will only earn .12 cents in 2012 and stick with the 3 analyst average of 0.06 per share in 2011. So investors get the potential for 100% forward earnings growth for a dollar and pocket change.
I also realize there is a strong perception that cotton prices hurt retailers and the luxury jean market is ultra competitive and fast changing with the likes of Diesel and True Religion in the game. Therefore, I'll assign a modest forward P/E of 12 times earnings and set my price target at $1.44 which still represents a nice 33% return.
Disclosure: I do not own any shares of JOEZ or TRLG.