The Motley Fool has made AMES it's Daily Double feature stock of the day
The Daily Double (Archive)
Oct 08, 1997
Ames Department Stores
(Nasdaq:AMES)
Phone: 860-257-2000
Website: amesstores.com
Price (10/7/97): $15 3/8
HOW DID IT DOUBLE?
After coming out of Chapter 11 bankruptcy in 1992, Ames Department Stores had no where to go but up. It languished for a while in the low single digits, then the stock began to move late last year as the benefits of cost cutting and restructuring began to make its way to the bottom line. After posting a loss in fiscal 1995, the company reported a profit for 1996 as it continued to close non-performing stores while opening stores in more promising locations.
One of the best ways to double is to turn around a failing company, as exemplified by Ames' return to profitability.
BUSINESS DESCRIPTION
Ames Department Stores is the fifth largest U.S. discount retail chain (behind Wal-Mart, Kmart, Target, and Caldor). It operates 296 self-service stores in 14 states and the District of Columbia. These stores serve lower-middle and middle-income consumers. The majority of the stores are located in rural areas where competition is less stiff.
Ames stores primarily offer brand-name general merchandise including family apparel and accessories, small appliances, consumer electronics, and home furnishings.
FINANCIAL FACTS
Income Statement
12-month sales: $2159.4 million
12-month income: $22.6 million*
12-month EPS: $1.00*
Profit Margin: 1.0%
Market Cap: $364.4 million
(*Excludes charge)
Balance Sheet
Cash: $17.5 million
Current Assets: $502.9 million
Current Liabilities: $383.4 million
Long-term Debt: $41.4 million
Ratios
Price-to-earnings: 15.4
Price-to-sales: 0.17
HOW COULD YOU HAVE FOUND THIS DOUBLE?
Turnarounds are some of the most difficult stocks to analyze. They are also some of the least-followed companies. While some companies coming out of bankruptcy take off in short order, others, such as Ames, take years to rally. Some never do.
At the start of this year there were no analysts covering the stock, but the Ames messag e board was full of optimistic comments. Shoppers could see that the company was thriving. With the March release of the 1996 10-K, there was clear evidence of a turnaround.
With the stock at $8 in February, the first analyst started coverage with estimates of $0.91 per share for the current fiscal year. Estimates for fiscal year 1998 were for $1.22 per share. An investor looking at this stock would have spotted a stock with a P/E of 10 and growth estimates for the year ahead of over 34%. That certainly could have sparked interest.
WHERE TO FROM HERE?
Now Ames has three analysts covering the stock. The stock has been mentioned as a good stock to buy in Smart Money, on CNBC, and in Barron's. The secret is out!
A PEG is not possible because of some negative quarters in the past year. However, estimates for fiscal year 1999 have been raised to $1.47 and long-term growth has been pegged at 15%. Put those numbers together and you have fair value at around $22. There may be some upside still left in these shares.
The company has announced that efforts to cut costs, improve efficiency, and open new stores are still in full swing. Debt is being reduced at a steady clip, as well.
A Foolish investor looking for a discount retailing stock could do worse than spend some time looking at Ames.
- Mark Weaver, MD, mweav@aol.com |
