Biglari Holdings Inc (BH) and More Want to Invest in Retail? Read This First

Usual suspects
The numbers many people cite when evaluating a retail company — same-store sales and sales per square foot — are obviously very important. Naturally, stores need to keep growing if you want the overall company to rise in tandem. Sales per square foot are also telling, but need to be kept in check. Big Lots, Inc. (NYSE:BIG) isn’t ever going to have anything comparable to Apple Inc. (NASDAQ:AAPL)‘s numbers — it doesn’t sell big-ticket items. You are better off using that figure internally rather than comparatively. For instance, J.C. Penney Company, Inc. (NYSE:JCP) CEO Ron Johnson has been very encouraging regarding the company’s new stores, which are limited in number at the moment but showing promising trends. The old J.C. Penney stores earn $134 per square foot. The new ones earn twice as much — $269. If we extrapolate that number and hold all else constant, we are looking at a very appealing stock given the basement-level valuation.

See how easy that was?

In conclusion
Financial metrics are a crucial part of any reasonable stock analysis, but they all have their drawbacks. Use these metrics as part of a balanced analytical diet. Don’t forget to do the less pencil-pushy stuff: listening to management, talking to customer service representatives, or counting how many people walk in the store every day. All together, these elements will help you build your case for or against a company.

The best part is, it requires nothing greater than some eighth-grade-level math. Take that, H.B.S. students!

The article Want to Invest in Retail? Read This First originally appeared on Fool.com and is written by Michael B. Lewis.

Fool contributor Michael B. Lewis has no position in any stocks mentioned. The Motley Fool recommends Apple, Cracker Barrel Old Country (NASDAQ:CBRL) Store, and Home Depot. The Motley Fool owns shares of Apple and Big Lots.

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