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Why Cramer Is Wrong on Gordmans Stores, Inc. (GMAN)

Admittedly, one of my favorite methods of finding a good investment is to see what companies Jim Cramer doesn’t like, and consider buying them for the long-term.  While this high-tech screener is not perfect by any means, it fits my contrarian values well and shows me many unappreciated and potentially undervalued companies.  By leveraging Cramer’s influence on the general trading population, I can occasionally find short-term sales on great long-term investments.

Gordmans Stores, Inc. (NASDAQ:GMAN)

He Has Spoken, Bearishly

The most recent company to pop up on my radar with this sophisticated screener was Omaha-based retailer, Gordmans Stores, Inc. (NASDAQ: GMAN).  Posting a 40% drop since its 52-week high in April, many traders seem to be losing faith in the 98 year old department store chain.  With a downgrade in hand from TheStreet, Gordmans is left with a stock price slightly above its IPO of $10.85 in 2010.  Issuing the following statement, “The fact that the stock is now selling for less than others in its industry in relation to its current earnings is not reason enough to justify a buy rating at this time,” TheStreet argues that there is basically no upside to its current price — and I couldn’t disagree more.

Reasons For My Bullishness

While it may not be a true value pick, or a high flying growth story, I believe that Gordmans is simply undervalued, and will outperform the S&P 500 over the long-term future.  As with any investment, I look for specific catalysts that will increase investor returns over the long haul.  With Gordmans specifically in mind, the catalysts are as follows:

1). Revenue Growth

2). Strong Margins

3). Solid Financials

4). A “Buy” Valuation

Revenue Growth

Targeting a 10% store front expansion rate for the mid-term future, Gordmans is going to continue diving into new markets throughout the Midwest.  Moving into 6 new stores in 2011 and 9 more in 2012, Gordmans has bumped its store count up to 83 total — right at 10% growth over the last 2 years.  With plans of adding 9 more stores in 2013, Gordmans will have grown its store count over 35% in just the last 4 years.
Furthermore, with revenue growing from $433 million in 2009 to $598 million in the TTM, Gordmans has realized 7% revenue growth to go along with its 10% store front growth.  As I mentioned earlier, this is by no means a high flying growth story, but rather one that is simply undervalued.
Strong Margins
Alright, saying a company has strong margins, while having the lowest operating and profit margins of its peer group may not be the best way to sell an investment in Gordmans — but stick with me.  While they have struggled to generate big-time profit margins since their IPO, they are growing nicely all the same.  Sitting at a measly 1.3% in 2009, Gordmans has delivered strong margin expansion as they currently sit at 7%.  With a strong store front expansion plan in place however, it may be difficult to continue boosting their profitability over the short-term.

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