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

Stock

Perry Ellis is the cheapest of the three stocks. It offers the lowest P/E ratio (trailing-12 months) among the three companies, at 17.9. In addition, 2012 EPS was 40% lower than that 2011 and 2010 results. It was also close to 50% below that in 2007. A potential return of EPS to prior levels could produce significant capital gains for investors. The much lower current EPS makes the stock a value purchase.

Conversely, PVH Corp (NYSE:PVH)’s P/E ratio (trailing-12 months) is quite high, at approximately 28.6. The company has had record earnings recently, and may continue to do well.

Also, Ralph Lauren Corp (NYSE:RL)’s stock is up 400% since the end of the recession. The company’s P/E ratio (trailing-12 months) is at 21.5. Ralph Lauren has consistently increased its earnings over the last decade; during that period, it has not had a single annual decline in earnings.

Just like PVH Corp (NYSE:PVH),  Ralph Lauren Corp (NYSE:RL) appears to be expensive, especially in relation with its peers. Most other retail brands in the market have much lower trailing P/E ratios. For instance, Abercrombie & Fitch (-17.22), American Eagle Outfitters (-12.95), and Gap  (-16.6). Since PVH Corp (NYSE:PVH) and  Ralph Lauren Corp (NYSE:RL) have much higher valuations and have produced record earnings, they may not be suitable as value investments.

Conclusion

Perry Ellis’ relatively low P/E ratio makes the company a good bet for value investors. The company has strong business fundamentals, and is loved for its urbane apparel. The same could be said about Calvin Klein (PVH Corp (NYSE:PVH)) and Ralph Lauren, but both have already tasted immense success and cannot be considered value stocks. Perry Ellis, on the other hand, has higher possibilities for a windfall gain.

The article One Apparel Stock That Could Deliver a Windfall originally appeared on Fool.com and is written by Nikhil Raheja.

Nikhil Raheja has no position in any stocks mentioned. The Motley Fool owns shares of Perry Ellis. 

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