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Monday March 01, 2010
Aeropostale (ARO) and EZCorp (EZPW)
By Richard Moroney, editor Upside
Among the best enhancements we’ve discovered focuses on the volatility of Overall Quadrix scores. Stocks with a history of steady Overall scores tend to have steady scores going forward. Below we look at two such stocks with strong and stable Quadrix scores. By emphasizing high scorers with a history of stable scores, you can reduce the risk of buying a stock just before its Overall score drops. That not only enhances returns, it also can result in lower portfolio turnover. In back-tests to 1994, we’ve found that high Overall scorers with low-volatility scores outperform those with high-volatility scores. We’ve also found that stocks with persistently high Overall scores tend to outperform, on average. 
Aeropostale (NYSE: ARO) has averaged an Overall score of 98 over the past 24 month-ends, never seeing its score drop below 93. That persistence partly reflects the retailer’s steady sales growth, with double-digit revenue growth in each of the last eight quarters. Operating momentum carried into December, with monthly sales rising 17%. Same-store sales climbed 10%, easily topping the consensus estimate of 3.1%. Management increased its guidance for January-quarter earnings per share to $1.33 to $1.34, implying at least 32% growth and exceeding prior guidance of $1.20 to $1.24. Aeropostale said merchandise profit margins increased for the month. January sales will be released on Feb. 4. A couple of concerns could weigh down the stock. Some analysts suggest that Aeropostale, coming off a strong recession run, is peaking. And its profit outlook of 8% growth for the year ahead seems modest compared to peers. Even so, Aeropostale has among the lowest price/earnings ratios among retailers in our research universe based on both trailing earnings (11.3) and projected year-ahead earnings (9.5). Earning the maximum Quadrix Overall score of 100, Aeropostale is a Best Buy. EZCORP (NASDAQ: EZPW) earns an Overall score of 100, with no month-end scores lower than 92 in the last two years. The stock is up 36% since Oct. 30, compared to 9% for the S&P SmallCap 600 Index. An operator of pawnshops and payday-lending stores, EZCORP ranks in the top 20% of stocks in our research universe for five of the six Quadrix category scores. The exception is Earnings Estimates, though that score may rise now that EZCORP has reported December-quarter results. Per-share earnings surged 58% to $0.52 in the December quarter, beating the consensus by $0.10. Total revenue jumped 44%, also exceeding the consensus. Results benefited from acquisitions and strong loan demand. Pawn service charges rose 55%, while jewelry-scrapping revenue climbed 89%. Following the strong quarter, EZCORP raised its profit outlook for fiscal 2010 ending September to $1.81 per-share, $0.12 above the consensus estimate at the time. Trading at a reasonable 11 times trailing earnings, EZCORP is a Best Buy. Learn more about this financial newsletter at Upside. |
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