Tuesday, May 18, 2010

A lesson from Peter Lynch

Years ago I remember reading an interview of Peter Lynch where he was asked how he kept coming up with new and original investing ideas. He mentioned how when he went shopping in the mall with his wife he'd sit outside a new store he never heard of and watch not only how many people went in and out but how many of them were carrying out bags of new purchases. He would then go back to his office and research that company. I recently had one of those Peter Lynch moments.

I was visiting my Mom in Fort Lauderdale and since my daughter was going to get married soon on the beach at Isle of Palms near Charleston I thought it might be nice to buy my Mom a new outfit for the wedding so she would look really nice in the wedding pictures. We went to the Galleria Mall on Sunrise Boulevard and while we were walking down the mall I thought I'd steer her into Chico's. I knew my Mom never shopped there but decided to go in anyway.

The outfits were a little more trendy then what Mom usually buys and I didn't want her looking at the price tags first as she always did. I spotted a very stylishly dressed saleslady named Dahlia and whispered to her how much I wanted to spend and how I wanted to push my Mom outside her comfort zone. She took right over sat Mom down and started bring out complete pairings for Mom to try on. While Mom was trying stuff on I noticed the heavy store traffic and how many women were going out with loaded bags. By the way Dahlia and my Mom finally decided on a really great looking outfit along with all the accessories and we had enough left in the budget to go find some shoes and a matching bag.

I decided to be like Peter Lynch and do my research after a successful shopping trip and got a nice surprise.

Chico's (CHS) has around 1100 stores under the Chico's, White House/Black House and Soma brands. Most stores are company owned and they sell mainly private label items to the more affluent 40 year and up woman who are looking for a one stop fashion store.

This year they seemed poised for a turn around and are improving not only same store sales but the bottom line as well. Wall Street has discovered the stock and has 7 buy and 10 hold recommendations published. Sales are estimated to increase 11.50% this year and 8.40% next year. Earnings are expected to be the real story with EPS increases of 70.50% this year 30.70% next year and a continued 5 year compounded annual growth rate of 16.71%.

Investor sentiment on Motley Fool is high with CAPS members voting 708 to 127 that the stock will beat the market. The more experienced All Stars agree by a vote of 180 to 26.

Technically the stock price has had a little pull back lately ( which might be good for long term investors ) and is trading around 14.15. I think if there are more reports of increased sales and earnings and this stock breaks through the 14.50 level it could go all the way to 25.

Even if you don't buy the stock stop in the Chico's at the Galleria Mall and say hi to Dahlia. Put yourself in her able hands and you'll look as good as my Mom did in her grand daughter's wedding pictures.

Jim Van Meerten is an investor who writes on investing on Financial Tides and
Barchart Portfolio blogs. Please leave a comment below or email JimVanMeerten@gmail.com

Disclosure: No positions in CHS at the time of publication

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