Should I Do It? Chico's FAS Not a Good Fit

Chico's bulls can take heart that insiders have recently bought stock on the open market. According to Securities and Exchange Commission filings, CEO David Dyer purchased 10,000 shares March 23 and director David Walker also picked up 1,000 shares March 15.

Many value investors often believe that insider buying is positive because management arguably knows more about the current strength of a company's business than the average investor.

Even so, history also shows us that management spent $200 million of Chico's cash to buy back 6.7 million shares between March and July 2006, at an average price of $30. Even though Chico's still has a pristine balance sheet, with $275 million ($1.60 a share) of cash and equivalents, clearly that wasn't an opportune time to buy, because the stock fell as low as $17.26 in August 2006.

With that in mind, I believe that readers should pass on Chico's at current levels. The company is still trying to expand its store count past 1,000 this year at a time when its existing locations have not been able to generate organic growth for several months.

While the stock is trading at just half the price it was last February, Chico's has already bounced 20% on the year, and I believe that better values currently exist in the stock market.

(For a free trial to Dave Peltier's Value Investor newsletter, click here.)