Chico's FAS Is Pricey but Has Room to Grow

Chico's numbers look impressive when we compare them with those of the Gap (GPS - commentary - Cramer's Take), whose stock went up eight times during the four years ended January 1999.

Chico's also stands up well against Paychex (PAYX - commentary - Cramer's Take), whose stock went up five times during the four years ended May 31, 1998.

So why don't I back up the truck right now? Two reasons. First, Chico's insiders are selling, and second, the stock's valuation. Here are the ratios based on a $20 stock price.

Enterprise value/revenue: 3.7 times

Enterprise value/EBITDA: 15.6 times

Enterprise value/defensive profits: 92.7 times

Enterprise value/tangibles book: 8.7 times

Chico's has room to grow profitably. I don't own it now, but I'm going to buy a few shares to remind myself to follow its progress. I'll buy more if the price drops to the mid- and low-teens.

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Think you know the next great growth stock? If so, tell me the company and why. If you make a persuasive case I'll run the numbers through my propriety model to see if it might be worth it for the long-term cautiously greedy investor. Over the next few months I'll share some of my findings with RealMoney readers. I'm especially interested in companies with sales between $100 million and $1 billion.

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Hewitt Heiserman has been a financial analyst for 15 years and has worked for Fidelity Investments, Simplex Time Recorder, American Holdco and Breakaway Solutions. He is now writing a book on the Earnings Power Box, an analytical model he created to gauge the quality of a firm's profits. (The Earnings Power Box is a trademark of Hewitt Heiserman.) At the time of publication, Heiserman had no positions in any of the securities mentioned in this column, although positions may change at any time. Under no circumstances does the information in this column represent a recommendation to buy or sell stocks. Heiserman appreciates your feedback and invites you to send it to [e-mail].