It's all cheap at 99 Cents Only, except the stock

Shares of 99 Cents Only Stores Inc. are trading today at their highest level since mid-May, up 52 cents, or 6.4%, to $8.65, on a down day for the market as a whole.

The Times has a front-page story today on the possibility that the City of Commerce-based retailer could start charging more than 99 cents for some items as it struggles with inflation pressures.

I wrote about this on the blog on Aug. 7 after the subject came up on the company’s quarterly conference call with analysts and investors. The stock is up about 22% since then. It had hit an 11-year low of $5.85 on July 15.

The chain has been losing money, so investors like the idea that more pricing flexibility could help put the business back into the black and keep it there.

Of 10 Wall Street firms that follow the stock, six have "buy" recommendations on it. Many analysts and shareholders believe the 277-store retailer is a long way from living up to its potential.

Even so, this is not a cheap stock at these levels, at least measured against expected fiscal 2009 and 2010 earnings. Analysts’ mean estimate for fiscal 2009 (ending in March) is for earnings of 14 cents a share; for the following year the mean estimate is 26 cents.

So the stock is trading at 62 times the 2009 estimate and 33 times the 2010 figure. Like I said, not cheap.

By comparison, shares of Chesapeake, Va.-based Dollar Tree Inc., another one-price discount chain, sell for 16 times analysts’ mean earnings estimate for this fiscal year.

For 99 Cents Only, there’s a lot of hope built into the stock price now.

Photo credit: Stefano Paltera / Los Angeles Times

Comments

[cyborg]

This business can really only do well when they figure out how to stop all the horrendous " shrink". It is out of hand.

[Lrew]

i sent them a name-change suggestion for "$1.11 Store". it's a nice-looking number and you can divide it by 3 (as in '3 for $1.11'). also it multiplies easily (9 items would be $9.99).

[Bill]

I love their stores and shop there first for everyday items, including food. If they don't have what you want, there is probably something that will do. If the name changes to 99 Mostly and certain items are a bit higher, I could care less and will go on shopping there. As for the stock price, any valuation over about 20 is suspect, so I would hold for now. With today's sluggish economy, the fundamentals are in place, assuming the 99 barrier is broken. The herd mentality on Wall Street can turn some stocks into 'darling of the moment' , but suddenly everyone wants to cash out, so there is a correction and valuation will drop to more normal levels.