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Pacific Sunwear of California Inc. Message Board

  • blue_devil_ninetynine blue_devil_ninetynine Nov 5, 2012 10:44 AM Flag

    Bottomed. All Aboard!

    I believe PSUN reached its lowest point at $1.52 today. Whoever bought at that level will be very happy a month from now IMHO. Now before anyone asks how I know this, the fact is that I really have no way of knowing for sure. I certainly didn't foresee PSUN's decline from $2.70 to the current levels. However, I happen to be a long term holder so I can shrug off the current pain as long as I end up being right in the long term. And my only observation about the current pain is that it has come based on zero material news. That's right, go back and look at the news over the last month and you won't find a single reason for the stock price decline. They had a really strong earnings release last quarter, and since I expect the next earnings release in early December to be strong and to signal a continuing recovery for the business, my expectation is that the stock price will return to a "rational" level by that time. If PSUN meets or beats expectations again and appears headed back to good health in 2013, I'm quite confident I will get to my target of $4+ very soon, and that will still leave plenty of room for others to seek gains from there. Try applying a healthy retailer's revenue multiple to PSUN and see what you get.

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    • PS: For comparison purposes, if and when PSUN gets back to profitability and becomes deserving of P/S multiples consistent with the industry, its stock price would have to be 3.5x current levels to match Aeropostale in Price/Sales, 4.5x current levels to match Abercrombie & Fitch, and almost 10x current levels to match American Eagle. It's YoY quarterly revenue growth of 5% last quarter was better than both Aeropostale and Abercrombie. The big question is whether that was a blip or whether it can sustain the positive momentum and get back to profitability. If the latter happens, longs will be extremely happy. That said, these kinds of potential returns obviously come with an appropriate level of risk - there's no free lunch.

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