Hot Topic, Inc. (HOTT) is Getting Hot: Abercrombie & Fitch Co. (ANF), Body Central Corp (BODY)

Body Central has the cheapest valuation

Over the past twelve months, Hot Topic, Inc. (NASDAQ:HOTT) generated about $70.85 million in EBITDA. Thus, with an offering price of $14 per share, Hot Topic is valued at nearly 5.7 times EV/EBITDA. Compared to its competitors including Abercrombie & Fitch Co. (NYSE:ANF) and Body Central Corp (NASDAQ:BODY), Hot Topic is the most expensive valued on the stock market. Abercrombie & Fitch Co. (NYSE:ANF), at the current trading price of around $47.76 per share, is worth $3.77 billion on the market. The market values the company at only 4.8 times EV/EBITDA. Body Central Corp (NASDAQ:BODY) is the smallest company among the three. It is trading at around $7.63 per share, with a total market cap of only $124 million. It has the cheapest valuation at only 3.37 times EV/EBITDA. Among the three, Body Central Corp (NASDAQ:BODY) has the most profitable with the highest return on capital at 184% while the return on capital of Hot Topic was negative at -2.6% in 2011. The return on Abercrombie & Fitch Co. (NYSE:ANF) stayed at 14.5%.

The Foolish bottom line

Hot Topic has set the bar for relative valuation between apparel specialty retailers. With much higher returns on capital, both Abercrombie & Fitch Co. (NYSE:ANF) and Body Central should be valued minimum at the same valuation of Hot Topic. At only 5.5 times EV/EBITDA, Abercrombie & Fitch Co. (NYSE:ANF) should be worth at least $54.70 per share and Body Central should be worth at least $12.45 per share.

The article Hot Topic is Getting Hot originally appeared on Fool.com and is written by Anh Hoang.

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