My New Price Target on a Low-Priced Stock Looking for a December to Remember
Looking for a holiday trade idea? I've got it in the bag.
You've reached your free article limit
You've read 0 of 1 free Pro articles.
It's been a good while since we took a look at this name.
Remember Vera Bradley VRA?
The small-cap retailer of handbags and accessories for women through specialty shops, outlet stores and directly, will report its fiscal third quarter financial results in about two weeks' time.
This name, some readers may recall, was one of the Stocks Under $10 portfolio's holdings that really just didn't do much. CEO Jacqueline Ardrey took that job in November 2022, and the portfolio got involved.
There was some immediate improvement in both the company's performance and the share price in early 2023, but those victories were short-lived and the excitement over the new hire fizzled. Here we are two years later, having not even taken a look at the stock in almost nine months, and finally, at least technically, there is cause for some cautious optimism.
Earnings
The second quarter was kind of tough to look at. Vera Bradley posted adjusted EPS of $0.13, GAAP EPS of $0.19 and revenue of $110.82 million, falling short of Wall Street's expectations on all counts.
Going into the Q3 release, Wall Street is looking for adjusted EPS of $0.06, GAAP EPS of $0.12 and revenue of $98.7 million. This would reflect a year-over-year sales decline of 14.2%. While Wall Street is still expecting to see a full-year sales contraction of something like 13% for the current year, sales growth and earnings growth are both projected for the next fiscal year.
Why Pay Attention?
VRA stock trades at just 13 times forward-looking earnings estimates and unlike many struggling retailers, has a balance sheet that most smallish, struggling retailers would be envious of. Even if Ardrey has appeared to struggle from afar, she has built a fundamentally sound company that has expenses under control.
Over the trailing 12 months, as of the August quarter, Vera Bradley had generated just $18.9 million in operating cash flow. Capex spending was just $5.7 million, leaving positive free cash flow of $13.2 million.
Moving on to the balance sheet, prepare to be impressed. Going back to August (we'll know more in two weeks), the company had a cash position of $44.1 million and inventories of $133 million. That put current assets at $223.5 million. Current liabilities at that time added up to $78.3 million with absolutely no short-term debt.
That left Vera Bradley with a current ratio of 2.85 and a quick ratio of 1.16. These are outstanding ratios for a retailer, especially in today's environment.
Total assets amounted to $379.2 million, of which only $6.2 million were intangible. That is outstanding. Total liabilities less equity came to $136.7 million. No long-term debt there. Combine that with no short-term debt and there was absolutely no debt on this balance sheet. Given the fact that this is a boutique-ish retailer, Ardrey must be a magician.
The Chart
In the chart above you will see the triple-top pattern of bearish reversal that produced the lows of September. For the past two months, the stock has traded within a range, forming a base. Wednesday morning, we see the stock breaking out of that base, reaching its highest prices since early September. Relative Strength has suddenly spiked, while all three components of the daily MACD (moving average convergence/divergence) have moved out of negative territory.
Chances are that this breakout will only have about a half dollar's worth of space before coming up against its own 200-day SMA (simple moving average). That is the objective for now, but in reality, the pivot. That's where a solid holiday season could end up providing some propellant for the stock to move up towards levels not seen since June or so.
Vera Bradley (VRA) Holiday Trade
Price Target: $7.90.
Pivot: $6.30 (200-day SMA).
Add: Above $5.60 up to $6 as long as the top of the base holds as support.
Panic: Loss of the 50-day SMA ($5.30).
Note: I intend to go through with this trade. However, so as not to front-run my own article, I will wait until it is published, and you all get a chance to read it.
At the time of publication, Guilfoyle had no positions in any securities mentioned.
