Perry Ellis International, Inc. (PERY), Ralph Lauren Corp (RL): One Apparel Stock That Could Deliver a Windfall

Perry Ellis International, Inc. (NASDAQ:PERY) is a value stock that has under-performed over the last few years. The company is known for its unique apparel, and has huge potential for revenue growth. In addition, the company’s small size provides it greater room for growth. Perry Ellis International, Inc. (NASDAQ:PERY)’ earnings are significantly below pre-recession levels, and a mere return to those levels could make the stock jump upwards of 50%. Value investors should seriously consider adding Perry Ellis to their portfolio.

Business model

Perry Ellis International, Inc. (NASDAQ:PERY) is popular for its unique and sophisticated designs. The apparel features a casual look that incorporates tasteful patterns and different textures. Such designs can be found in few others brands. Consequently, the company has built a huge customer following and has become a favorite among those who prefer suave business casual apparel.

A major competitor of Perry Ellis International, Inc. (NASDAQ:PERY) is Calvin Klein, which is owned by PVH Corp (NYSE:PVH). Calvin Klein’s offerings are equally fashionable, but have distinct designs and use more color. Perry Ellis and Calvin Klein do have an overlap of some customers, and are in strong competition with each other.

Both Perry Ellis International, Inc. (NASDAQ:PERY) and Calvin Klein sell men’s and women’s apparel. However, Perry Ellis is mostly focused toward the men’s side of the business and has few options for women. Both companies sell very fashionable apparel in the same price range. For instance, each company sells men’s shirts in the $65 to $80 range, and therefore competes for the same lot of customers.

Perry Ellis International, Inc. (NASDAQ:PERY) is the least-popular brand among the three and has a lot of potential to grow. The company has slightly less than $1 billion in sales, and holds the potential to grab market share from other, more popular brands.

Revenue

Perry Ellis’ revenue has grown consistently over the last decade. However, the earnings growth has been inconsistent. The company’s earnings in 2012 were almost the same as those in 2003. Clearly, the company has struggled to keep its direct and indirect costs down. Perry Ellis has the lowest gross margins of the three designers, and a potential increase in margins could bring the stock into balance and result in huge gains .

On the other hand, Ralph Lauren Corp (NYSE:RL) enjoys higher gross margins due to the company’s pricier apparel. Unlike Perry Ellis, Ralph Lauren has seen very high earnings growth over the last decade.  Ralph Lauren Corp (NYSE:RL)’s EPS has risen almost 400% over that period. Similarly, PVH Corp (NYSE:PVH) has seen high earnings growth recently–so much so that the company’s earnings are 30 times 2003 levels.