Thursday Winners: Advance Auto, CitiTrends, Perry Ellis

Among the biggest winners in Thursday’s early trading are AdvanceAuto (NYSE: AAP), CitiTrends (Nasdaq: CTRN) and Perry Ellis (Nasdaq: PERY).

Top Percentage Gainers — Thursday, May 20, 2010
Company Name (Ticker) Intra-Day Price Intra-Day
% Gain
52-Week High 52-Week Low
Advance Auto (NYSE: AAP) $49.37 +7.1% $50.21 $36.11
CitiTrends (Nasdaq: CTRN) $32.47 +6.5% $37.57 $20.92
Perry Ellis (Nasdaq: PERY) $22.68 +0.9% $26.87 $5.63
*Table includes companies with minimum market capitalizations of $200 million and three month trading volumes of at least 100,000 shares. All percentage returns are listed as of 12:14PM Eastern Standard Time. Click on ticker symbols for up-to-the-minute price quotes and percentage gain data.

Market Grinds Lower

Except for a modest gain on Monday, the market has been under pressure since last Thursday. The S&P 500 has shed nearly -8% since during the past week. A correction can be quite healthy in the context of a long-term bull market, but if the selling continues for a few more sessions, it could really feed on itself and set the stage for an extended downward move. For now, many are still speaking of this as a buying opportunity.


Growth Opportunities Abound for this Retailer

A number of specific stocks have really taken a bath this month, with some down -20% or even -30%. Any companies reporting good news right now can get lost in the shuffle.

#-ad_banner-#CitiTrends (Nasdaq: CTRN) is a fine example. The urban-focused retailer has been a solid growth story in recent years, and should have pushed through to a 52-week high when it reported stellar quarterly results on Wednesday morning. Per share profits rose sharply, nearly +30% ahead of analysts’ forecasts, but shares fell nearly -10% on Wednesday anyway in the face of broader market selling.

Investors are correcting that mistake, pushing shares up more than +6% on Thursday, even as the broader market continues to slump. And with good reason. For starters, earnings estimates are likely to rise by a good margin, with 2011 EPS forecasts approaching $2.50. Shares trade for just 13 times that view, even though profits are growing at three times that rate. In addition, CitiTrends has ample long-term growth opportunities. The retailer has yet to enter many key urban markets, most notably in the Northeast. Combined with rising traffic at existing stores, top-line results can continue to grow in excess of +15% for several years to come, and bottom-line results at an even faster clip.

Action to Take –> As the market stabilizes, shares should start to move beyond the 52-week high of $37, and perhaps past the $40 mark. This implies gains of at least +25% in the near-term, and perhaps much more in the long-term as this retailer steadily expands its footprint.


Retail Strength amid Stock Market Weakness

We’re seeing positive quarterly results today from Perry Ellis (Nasdaq: PERY), Williams-Sonoma (NYSE: WSM), Children’s Place (Nasdaq: PLCE), The Buckle (NYSE: BKE) and Casual Male (Nasdaq: CMRG). Yet a clear divergence in the sector has emerged: Sales trends have been fairly positive, but the Retail HOLDRS ETF (NYSE: RTH), an exchange-traded fund (ETF) we mentioned yesterday, is off another -2% on Thursday and is now down more than -10% since late April.

There may be a correlation. As the market weakens, it could begin to impact consumer spending. After all, the remarkable rebound in the value of many retirement plans surely led many consumers to re-open their pocket books.

Shares of Perry Ellis create a particular conundrum. The retailer posted very impressive quarterly results Thursday morning and boosted guidance, which is pushing shares up in an otherwise down market. Yet the company’s key demographic is precisely the type of customer that is likely seeing some of his portfolio diminish in value in this market pullback. Then again, if the market weakness proves to be ephemeral, the positive sales and profit momentum is likely quite sustainable. Shares are certainly inexpensive at about 14 to 15 times expected earnings for the current year.

Action to Take –> There may be other retailers more leveraged to an eventual downturn in unemployment, but shares of Perry Ellis possess nice blend of growth and value. Today’s positive action in the stock is likely to continue, unless the market slumps even further.


Auto Parts Stores have been Winners, but Will it Last?

As Americans hold on to their cars longer, demand for auto repairs and parts continues to climb. The major auto parts chains have posted above-average growth for several years now, and the trend continues. Advance Auto Parts (NYSE: AAP) rang up impressive quarterly results Wednesday after the market close, and boosted full-year guidance. That was good for a +7% gain in shares in Thursday trading.

But the positive industry trends may be close to ending. Auto sales are beginning to rebound, and if unemployment drops, many aging cars may once again be scrapped rather than nursed beyond their normal usable life. The entire auto parts sector is near saturation thanks to never-ending expansion plans from the likes of Advance Auto, Auto Zone (NYSE: AZO), O’Reilly Automotive (Nasdaq: ORLY) and Pep Boys (NYSE: PBY). The group generally trades for 18 to 20 times trailing earnings, with shares of Auto Zone a bit cheaper, and shares of Pep Boys being unjustifiably expensive on a trailing earnings basis.

Action to Take –> Despite the impressive results from Advanced Auto, the entire sector does not represent robust growth opportunities. Better opportunities lie elsewhere.