Body Central Sets Up For Another Up Leg

Body Central (BODY) is a specialty retailer offering on-trend, quality apparel and accessories at value prices. As of March 8, 2012 the company operated 241 specialty apparel stores with plans of opening 35 additional stores (a 14.5% increase) during 2012.  Same store sales grew by 11.3% in 2011 and operating margins increased to 10.6% of net revenue from 8.2% in 2010. In the latest quarter, BODY reported earnings per share grew by 52% to $0.38 year/year, a penny better than analyst estimates, and revenues rose 20% to $80.7 million compared to $79.7 million estimates. The company issued downside revenue guidance for the next fiscal quarter, seeing revenue  of $343-348 million versus $354 analyst consensus, citing a softening in sales trend. Management expects to resolve the issue with a fresh product mix. Looking forward, analysts see 24% year/year eps growth for 2012. With a forward price to earnings ratio of 19, resulting in a PEG of 0.79, valuation looks reasonable. Management runs a tight ship with return on equity at 28% in 2011.

Assuming management can address the current quarter’s weakening sales trend and manage the hyper growth in new store openings (management has a solid history of handling operating details), the fundamentals for BODY look bright. Mutual funds agree as the number of funds owning BODY has increased for three quarters in a row as follows:  Jun-11 147, Sep-11 167, Dec-11 188, Mar-12 205.

Technically, the stock has been forming a constructive flat base since the end of February.

A trigger buy point would follow a move over the 29.5 area on strongly increasing trading volume with an initial stop loss in the 27 area. The stock trades somewhat thinly so position size needs to be relatively small. Earnings are expected after the market close on Tuesday May 3 which adds to near-term risk in the price movement. The overall stock market environment appears positive and supportive of new stock positions.

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About jstradingnotes

I spend a lot of time analyzing the economy and securities. The effort has enabled me to generate multi-thousand percent returns on my trading capital over the past twelve years. The next few years offer an incredible opportunity to take outsized gains from the markets. Large structural imbalances in the major western economies will result in enormous market volatility as the imbalances get resolved, offering generational money-making opportunities. The major imbalances are excessive sovereign debt, crazy risk concentration in major banks, and enormous derivative exposure in the financial sector. A systemic shock can easily create a default cascade through the financial system where one failure precipitates another and another and so on. Central banks are very aware of the risks, and they are filling the financial system with liquidity by printing new money, risking massive inflation in a few short years for the United States and Europe. China has 2-3 trillion in dollar exposure, and they would like to have far less for fear of continued currency devaluation (they've lost billions holding dollars as the value erodes). As the size of their holdings prevent them from rapidly liquidating their dollar assets (which includes U.S. treasuries), they are instead spending their dollars on resources (copper mines, rare earth metal mines, oil wells, etc.). Lately they have been accumulating gold assets, perhaps with a view to making the Renminbi convertible into gold and displacing the U.S. dollar as the international reserve currency. Their gold buying is enormous and presents an easy investment thesis: ride the Chinese horse and buy gold and gold stocks. In this blog, I'd like to share some of my trading ideas and insights on the markets as these exciting times unfold.
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