Its management has proven successful in expanding the business through wise investments. Over the past few years, its focus has been on its retail segment. Results have been strong in both the online and offline channels, and a new retail-oriented CEO could boost these results further.
Vera Bradley, Inc. (NASDAQ:VRA)’s strong pricing power is another very attractive characteristic. Its regular clients are willing to pay full prices for its products, as they are led to believe that they will not be able to find that particular item in an Outlet store later. This has helped the firm attain industry leading margins, returns, and growth rates over the past few years.
Experience is knowledge
Perry Ellis International, Inc. (NASDAQ:PERY) is yet another apparel designer and manufacturer that licenses and markets its products around the world through several retail channels. Just like Vera Bradley, Inc. (NASDAQ:VRA), Perry Ellis International, Inc. (NASDAQ:PERY) trades at discount to its peers, at 20 times P/E, although analysts expect it to outperform its industry, retrieving an average EPS growth rate of 18% per annum over the next five years. Strong earnings last quarter (despite weak revenue) have kept the momentum intact; however, at current valuation, this stock looks like a buy to me.
My main reason to believe in the company’s growth is an intangible: its management. With critical experience in the segment, it has proven successful through 50 years of ups and downs in the industry.
Going forward, this alone makes me feel assured. However, other strong reasons can be pointed out, including a known brand and product offerings; a history of remaining hip (and getting the fashion right); a strong licensing model with huge clients like Macy’s and Kohl’s; and its acknowledgement for its high-end, trendy products, which makes its clients willing to pay a premium for the items.
Acquisitions and international expansion have and will play an increasingly important role in Perry Ellis International, Inc. (NASDAQ:PERY)’s growth. Plenty of cash available will help continue with fashion brand purchases, while international markets will provide plenty of expansion opportunities.
Bottom line
Although some might argue that the apparel segment’s growth is capped, I believe it is just a matter of knowing where to look. The three companies described above provide great growth potential and visible catalysts at very attractive valuations. I´d recommend adding them to your investment portfolio.
The article Dressed for Success: 3 Value Plays in Apparel originally appeared on Fool.com and is written by Damian Illia.
Damian Illia has no position in any stocks mentioned. The Motley Fool owns shares of Perry Ellis. Damian is a member of The Motley Fool Blog Network — entries represent the personal opinion of the blogger and are not formally edited.
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