High quality at reasonable prices has been a successful formula for a Charlotte ladies' clothing firm that even publishes its own fashion magazine.
Cato Corporation (NYSE: CTR) operates women's fashion specialty retail stores in the southeastern United States. It offers an assortment of apparel and accessories, including sportswear, dresses, coats, shoes, lingerie, costume jewelry, and handbags. The company operates 1,301 retail stores under the names Cato, It's Fashion!, Cato Fashions and Cato Plus. The stores are located primarily in strip shopping centers anchored by national discounters, or market-dominant grocery stores.
The firm surprised the Street last week, when it boosted its Q2 EPS guidance from 27-31 cents to 35-37 cents. Analysts had been expecting 29 cents. Management also announced June same store sales results that topped analyst expectations.
The stock popped into the initial stage of a bullish "pennant" pattern on the news. Prices frequently exit pennants moving in the same direction they were traveling when they entered them. In this case, that would be to the upside.
Brokers recommend the shares with two "strong buys" and one "hold." The CTR P/E ratio (16.16), Price to Sales ratio (0.91), Price to Book ratio (2.71), Price to Cash Flow ratio (11.24), Price to Free Cash flow ratio (25.64), Return on Assets (11.12%) and Return on Investment (16.06%) compare favorably with industry, sector and S&P 500 averages.
Institutions own about 94% of the outstanding shares. The stock is one of those used to calculate the S&P 600 SmallCap Index. Over the past twelve months, it has traded between $20.30 and $25.70. A stop-loss of $21.30 looks good here. Note that the firm is expected to report Q2 results in mid-August.
Larry Schutts is a contributing editor for Theflyonthewall.com and the Vice-President of Stockwinners.com.
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