Don’t Miss 50% Upside Because Of Short Sellers

The company needs a sales outlet strategy that doesn’t weaken the brand, but strengthens it. This is especially true with Vera, where it has found that its full-price and outlet shops cater to different clientele. The outlet stores cater to those who don’t mind last year’s style at a discount, and the other group favors the latest and most recent styles.

Vera already has a strong e-commerce business. In the second quarter, website traffic increased 20% compared with last year. Vera has had 45 million visitors to its website this year, and its Facebook page has 1.4 million followers. The retailer now has more than 2 million customers in its growing database.

Vera has a strong relationship with Dillard’s, Inc. (NYSE:DDS). The company invested in Vera Bradley fixtures for more than 100 Dillard’s locations. Dillard’s has 283 locations across the U.S., and the company has shown an increased willingness to support the Vera Bradley brand.

Vera is also compelling from a valuation perspective, trading below major peers. Vera trades with a forward price-to-earnings (P/E) ratio of 10.5, where Coach is at 12.8 and Michael Kors is 22. On an enterprise value/EBITDA (earnings before interest, taxes, depreciation and amortization) basis, Vera is at 6.6, compared with Coach’s 8 and Kors’ 19.

Risks to Consider: The first risk is that the overall macro environment remains weak, where the accessible luxury category is consumer discretionary. The company’s handbags are not necessities, and so their purchase can be delayed. That has had a significant effect on the company over the past two years.

Action to Take –> Vera is in the early innings of its long-term growth story, and investors with patience will be well-rewarded. The company has high insider ownership, and once a new CEO is appointed, a lot of uncertainty will be removed. The potential upside is to $30, which is a price-to-sales multiple of 2 on Wall Street’s 2015 sales estimates, driven by a returns to positive comparable store sales and improvements in its merchandise assortment.

While the ebb and flow of apparel and accessory trends make Vera a tough stock to own forever, there are a select group of world dominating companies that investors can actually own forever. We call these “forever” stocks, because investors can literally buy, forget about and hold — forever. To learn more about these stocks — including some of their names and ticker symbols — click here.