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Abercrombie & Fitch Co. (ANF), The Buckle, Inc. (BKE): An Opportunity in a Difficult Business

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I’m constantly on the lookout for new stocks to follow. Since I’m a big fan of Peter Lynch’s investment style, one way I find new ideas is from retailers that are popular with my family. When I asked my wife what her nieces favorite stores were, she said they all liked Francesca’s Holdings Corp (NASDAQ:FRAN)’s, and I immediately put it on my watch list. As Lynch said, it’s not a certain buy signal when family members like a store, but it certainly helps to have the perspective of real-world customers. Much like Lynch used to do, I took this initial tip, and then dug into some research on whether this might be a potential investment.

Abercrombie & Fitch Co. (NYSE:ANF)

A Difficult Business to Say the Least
Clothing retailers have a difficult enough time keeping up with different fashion trends, and when you add in the ever-changing tastes and trends among young adults, the business becomes even more difficult. Francesca’s Holdings Corp (NASDAQ:FRAN)’s competes in this highly challenging market along with such well-known names as American Eagle Outfitters (NYSE:AEO), Abercrombie & Fitch Co. (NYSE:ANF), and The Buckle, Inc. (NYSE:BKE).

While each of these retailers has its own niche, Francesca’s Holdings Corp (NASDAQ:FRAN) has to be doing something right to attract the taste of three different personalities in my wife’s nieces. They definitely don’t agree on everything, but as Lynch once said it’s a good bet that if they like the store there are likely thousands of young adults across the country that have the same opinion. If Francesca’s Holdings Corp (NASDAQ:FRAN)’s can capitalize on its current popularity, this would be a point in favor of investing in the stock. However, I like to see much more concrete evidence that the company will perform well, so let’s take a look at some of the important numbers that define this story.

This One Is Not Even Close
When investigating a new investment opportunity, I start by taking a look at analyst expectations for earnings growth over the next few years, as well as revenue growth expectations, and past earnings performance. If investors are judging Francesca’s Holdings Corp (NASDAQ:FRAN)’s versus their peers on these three measures, the case is closed, the stock is a buy.

When it comes to expected earnings growth, the average analyst expects Francesca’s Holdings Corp (NASDAQ:FRAN)’s to increase earnings by 24% per year over the next several years. By comparison, none of the companies Francesca’s competes against is even in the same ballpark. Abercrombie & Fitch Co. (NYSE:ANF) is expected to grow earnings by over 16%, American Eagle is expected to grow by around 11%, and The Buckle is expected to post growth of just over 6%.

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