So why, then, are these stocks so cheap? After all, there has to be some reason investors aren’t piling in, right?
An Express ticket to profits
On one hand, while Express, Inc. (NYSE:EXPR) met expectations for both revenue and earnings per share with its most recent earnings report two weeks ago, the stock is still reeling after falling margins caused by lower-than-expected foot traffic in February resulted in the company offering cautious guidance for 2013. Of course, in exchange for its prudence, Mr. Market pushed shares of Express down by a whopping 10% that day.
Even so, I agree with the analysts at UBS, who quickly chimed in with a buy rating at the time and placed a $21 price target on Express, noting that its long-term story remains favorable as the company is “taking the right steps to fix the business by simplifying pricing, increasing key items, recognizing fashion trends, and increasing customer prospecting.”
What’s more, Express’ e-commerce sales growth shows no signs of letting up after growing 32% last year. All in all, e-commerce represented more than 12.5% of total sales in 2012, and management expects it to eventually make up more than 15% of the business going forward. In addition, with 625 of its 640 stores currently located in the U.S. and Canada, Express, Inc. (NYSE:EXPR) is only just beginning to place greater focus on international expansion through franchises in the Middle East and South America, with plans for existing international franchisees to open an additional 13 to 16 stores this year.
Finally, in the most recent earnings conference call, Express, Inc. (NYSE:EXPR) management also discussed an early-stage initiative to develop a new segment of outlet stores, which should afford higher returns on investment than Express’ typical locations and could serve as a solid supplement to its already-profitable business model going forward.
Buckle up for long-term gains
The Buckle, Inc. (NYSE:BKE), on the other hand, is a bit more of a mystery considering its shares trade hands at less than 10% below their 52-week-highs set last November. In fact, shares of Buckle are actually up 4% so far in 2013. As I mentioned above, Buckle also has a beautiful balance sheet with no debt and plenty of cash, and the company posted solid quarterly results two weeks ago, meeting revenue expectations and slightly beating estimates for earnings per share.
Unlike Express, however, Buckle managed to tighten its belt and improved year-over-year margins across the board in its last quarter, with gross margin most notably rising 60 basis points from the fourth quarter of 2011 to 48%.
Like Express, Inc. (NYSE:EXPR), Buckle continues to expand its number of locations at a steady pace, and plans to open just 13 new stores in 2013. When all is said and done at year-end, then, that would bring its total store count to 453. Even so, if The Buckle, Inc. (NYSE:BKE) can simply maintain its solid margins and continue to grow its cash over time, investors should be able to look forward to years of predictable growth while continuing to collect a solid dividend.
The article Do These Retailers Deserve to Be This Cheap? originally appeared on Fool.com.
Fool contributor Steve Symington has no position in any stocks mentioned. The Motley Fool recommends and owns shares of The Buckle.
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