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Vera Bradley, Inc. (VRA): A Buying Opportunity Which You Shouldn’t Miss

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Shares of Vera Bradley, Inc. (NASDAQ:VRA) are trading roughly 30% down from highs reached back in October. Lowered guidance and a management shakeup have seemingly shaken up investors. But has this pullback offered investors an attractive entry point to this well known brand?

Why is VB down 30%?

Vera Bradley, Inc. (NASDAQ:VRA) is down on fears of slowing growth. Last quarter, the company lowered earnings guidance 5% — from earnings per share of $1.83 – $1.88 to $1.74 – $1.78. This triggered a prompt 12% sell-off.

There is also speculation of some problems with management. CFO Jeffrey Blade resigned in January. The ominous “effective immediately” resignation from Indianapolis Business Journal’s “2011 CFO Of The Year” left investors scratching their heads. Now, CEO Michael Ray has announced that he is going to retire. Investors tend to get the jitters when two of your top officers leave the company in the same year.

The good

While growth is slowing, Vera Bradley is still growing.

VRA Revenue TTM data by YCharts

Revenue continued to climb in the most recent quarter, beating analyst estimates. Management has been able to grow this metric over the past three years at an average of 23% a year.

The above chart also gives a glimpse into the company’s strong financial position. The company has virtually no long-term debt — just $5 million. Compare that to the company’s cash position of $8 million. Total current assets add up to $195 million, although most of that is inventory. But compared to total current liabilities — $51 million — it looks solid.

Unfortunately, net income hasn’t kept pace with revenue. While some metrics — like operating margin — remain historically high, Vera Bradley, Inc. (NASDAQ:VRA)’s margins are improving.

VRA Operating Margin TTM data by YCharts

Initiatives like a growing online presence — now 23% of revenue — are leading to the improving margins. But going forward, management has cautioned that margins may take another dip. Inventory is high, and prices may be lowered to clear this inventory out.

Attractive entry?

Currently Vera Bradley carries a P/E ratio of 13. This is lower than Coach, Inc. (NYSE:COH)‘s P/E of 15 and Michael Kors Holdings Ltd (NYSE:KORS)‘  P/E of 31. But not only is Vera Bradley, Inc. (NASDAQ:VRA)’s P/E the lowest, it has also fallen the most.

VRA PE Ratio TTM data by YCharts

It may be hard to compare these three companies in terms of price to earnings since all three are growing at different rates and would naturally require different valuations.

Company P/E Forward P/E Projected Earnings Growth PEG
Vera Bradley 13.42 11.28 16% 0.82
Coach 15.43 13.86 10% 1.30
Michael Kors 31.48 19.38 38% 0.83
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