Tuesday, September 21, 2010

Undervalued Micro Cap Stock

Below is a micro cap/ penny stock with large cash positions giving investors all the right signals. I believe this stock is undervalued due to one or more reasons and could bounce back strong with consumer spending. The stock is The Wet Seal Inc.,
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The Wet Seal Inc. (Ticker: WTSLA)
Current price: 3.39
52 week range: 2.77 - 5.25

The Wet Seal is a clothing retailer with a product line designed for woman. The company operates two
brands The Wet Seal which targets younger trendier shoppers and Arden B aimed at young professional woman. Under these brand names WTSLA owns 504 stores in 48 States.

The first thing that jumped out at me with Wet Seal is their extremely low valuation; their current P/E is 3.7 compared to their 5 year average of 4.8 and their P/B is 1.2 compared to 3.3 for their 5 year average. The next thing that impressed me was their high levels of cash and their recent announcement of their stock repurchase program of 7% of the market value. This should have to opposite affect of price dilution and will increase their EPS lowering the valuation ratios even more. The company has also managed expenses very well increasing its bottom line dramatically over the past 5 years.

Wet Seal's revenue has remained relatively flat over the past 5 years, this is in no doubt due to the recession. Consumer spending remains stagnant, but hopefully will show signs of improvement soon.

Future Growth
The Wet Seal stated in their 3Q earnings release that they plan on opening 60 new Wet Seal Stores next year to drive revenue growth for their fiscal 2011. They plan on taking a different approach and targeting off-mall locations and a focus on more profitable malls across the US. I am impressed with Wet Seal's growth plan for the next year and believe it will have a positive influence on revenue growth and their bottom line.

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1 comment:

  1. Thanks for taking the time to talk about this, I feel strongly about it and enjoy learning more on this topic. If possible, while you gain knowledge, would you mind updating your blog site with more information?

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