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JOSB – Trying to Digest a Poor Year

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Jos A Bank (JOSB)

Stock Price: $29

Expected to Report Profits: April 12

Business Description

Jos A Bank is a retail store which specializes in men’s apparel, dress and casual. They sell their own brand of clothing.

Sharek’s Take

JOSB one-year chart
Jos A Bank (JOSB) one-year chart

Jos A Bank is one of my favorite stocks because we have owned it for a long time and have realized very good gains. So when profits dropped 16% in the first quarter of 2006 — and the stock tanked — I held on. JOSB had some inventory issues — old product sitting on the shelves — which is an issue that takes a year of more to fix. I held the stock, even though it didn’t fit the mold, because I feel this company has an easy job of keeping up with styles. I mean guys are still wearing polo shirts and sweaters so get some more timely ones in and you should be back on track. JOSB sells a higher quality product (I think) than Men’s Wearhouse (WM) which, I think, is good. You can only wear cheap stuff so long before getting sick of it and movin’ on up. They also have a twist in that some of their clothes have nanotechnology that allows dribbles to roll off, without staining.

Inside the Numbers

JOSB was doing good, then it wasn’t, and now it is trying to bounce back. The company surprisingly has had two consecutive quarters of 20% or more profit growth. Next quarter is expected to fall back to 14%, and since these estimates have come down a tick-or-two, I don’t think this company will beat by much. But, there is light on the horizon. After this quarter passes, we are looking at 22% and 21% quarters (if these estimates don’t change).

What really makes JOSB attractive is its 12 P/E. If the stock sells for 20x earnings this year, and makes $2.47 as expected, this is a $49 stock. That’s 63% higher than it is now. But if estimates come down, take it as a bad sign. At least they didn’t lower annual estimates last quarter.

But a 12 P/E does make this a safer investment with little downside. This is why I didn’t sell Jos A Bank earlier in 2006. It just doesn’t get any cheaper than 12 times earnings for a growth stock, so I didn’t see a whole lot we could use.

20x earnings is tough to get with JOSB, even though it often deserves it. I don’t think JOSB gets the respect it deserves.

Long Term Chart

Back at the bottom of this mountain you see here, I found JOSB when it was below the radar. So I sent my findings to the research department at the firm I was working and thought I had caught the big one. We’ll they decided it wasn’t worth looking into (in a very nice way). We bought it anyway, and it has been a very good performer. But with any great long term stories, you have to hold for the long term, which I did not with my personal money (do as I say, not as I do).

At this point, it looks like JOSB is trying to digest a poor year, and for 12 times earnings, the stock has an opportunity to get back on track.

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David Sharek David Sharek is stock portfolio manager and CEO of DavidSharek.com. David believes a company's profits ultimately drive the price of its stock. His book The School of Hard Stocks can be found on Amazon.com.