Sears Hometown and Outlet Stores Inc (SHOS) Sailing Strong Into Next Earnings

In that third quarter mentioned above, the company opened nine new stores. While nine is plenty for a 13-week period, there is much, much more room for growth. At the end of the third quarter, there were 126 outlets, up from 123. The other six are presumably Hometown and Hardware stores that will be or have already been transferred to franchise-owned.

On the valuation front, the stock isn’t as cheap, but is still nonetheless trading at a discount to its peers. At an enterprise value of $906 million, today’s stock price implies a slight discount — valuing the company at $897 million. The company’s EV/EBITDA remains below comps at roughly 7.8. For comparison, look at Costco Wholesale Corporation (NASDAQ:COST)’s 10.83, Wal-Mart Stores, Inc. (NYSE:WMT)’s 7.87, and, though not a direct comparison, Amazon.com, Inc. (NASDAQ:AMZN)‘s 53.94. For a warehouse retailer with a very, very small number of stores comparatively, Sears Hometown and Outlet Stores looks to be still undervalued.

Foolish bottom line
So what should potential investors do if they have yet to get in on the stock? As mentioned earlier, there is still some upside potential here, but it may not be for long if the upcoming earnings release is as positive as I am expecting. The company remains an attractive investment for its growth, its value, its insider ownership (Eddie Lampert owns a substantial amount of shares), and in true value investor form, its simple, cash-generating business model.

Fool contributor Michael B. Lewis has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned.

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