5 Specialty-Retail Stocks That Could Pop

BOSTON (TheStreet) -- The still-challenged U.S. consumer is showing signs of life. So-called personal-consumer expenditures were a catalyst for fourth-quarter gross domestic product, which grew at a 2.8% pace, improving on the third quarter's 2.6%. Specialty retailers should enjoy 2011 sales growth as more enter the workforce. Here is a look at five top small-cap specialty retail stocks. Below, they are ordered by percentage of "buy" ratings.

5. Destination Maternity ( DEST) sells maternity apparel, ranging from casual to career wear.

Destination Maternity's stock has gained 32% a year, on average, since 2008, besting retail peer investments. It has soared 90% in the past 12 months. The company is growing a following on Wall Street. Currently, three researchers rank its stock "buy" and one ranks it "hold." None rate the shares "sell." Small-cap focused Needham & Co. forecasts that Destination's stock will rise another 20% to $54 in the next 12 months. Sterne, Agee & Leach more conservatively predicts a rise of 14% to $51. Despite a recent run, the shares are still cheap.

Destination's stock trades at a trailing earnings multiple of 14, a forward earnings multiple of 10, a sales multiple of 0.5 and a cash flow multiple of 7.6, 25%, 37%, 45% and 38% discounts to specialty retail peer averages. Its PEG ratio, calculated by dividing the trailing P/E by analysts' terminal growth forecast, of 0.3 indicates a 70% discount to estimated fair value. Fiscal first-quarter adjusted earnings increased 24% to 88 cents, beating analysts' consensus estimate by 29%, as the operating margin rose from 5.3% to 6.8%. Sales narrowly missed the consensus forecast.

4. Ascena Retail Group ( ASNA) is a specialty retailer of apparel for women and teenage girls, with stores in the U.S. and Puerto Rico. It operates stores under the Dress Barn and Justice names.

Ascena's stock has risen 34% a year, on average, since 2008, outperforming comparable equities. It has returned 17% in the past 12 months. Of equity researchers evaluating the company, seven, or 78%, advise purchasing its shares and two recommend holding them. None say to sell. The stock has a median target of $34.50, suggesting an impending gain of 11%. Piper Jaffray, rating it "overweight", expects a rise of 26% to $39. BB&T Capital Markets values Ascena at $30, implying modest downside, but rates it "buy." Ascena sells for a peer discount.

Its stock commands a trailing earnings multiple of 14, a forward earnings multiple of 11, a book value multiple of 2 and a cash flow multiple of 8.9, 28%, 38%, 37% and 27% specialty retail industry discounts. Its PEG ratio of 0.5 reflects a 50% discount to estimated fair value. Ascena is scheduled to release fiscal second-quarter results this morning. The company has an average earnings beat rate of more than 13% and an average sales beat rate of 1.3%, but its stock dropped 3.2% and 4.7%, respectively, in response to the two previous quarterly earnings releases.

3. Shoe Carnival ( SCVL) is a footwear retailer, selling dress, casual and athletic shoes.

Shoe Carnival's stock has advanced 23% a year, on average, since 2008, outpacing comparable investments. It has rallied 36% in 12 months, but has corrected more than 10% in three. Of stock analysts covering Shoe Carnival, six, or 86%, advise purchasing its shares and one recommends holding them. None advocate selling. The stock has a median target of $32.75, implying 28% upside in the next 12 months. Sidoti & Co. forecasts that the stock will rise 52% to $39. BB&T rates it "buy", but predicts a more modest 9% rise to $28. The stock is still cheap.

It trades at a trailing earnings multiple of 13, a forward earnings multiple of 12, a book value multiple of 1.4 and a sales multiple of 0.5, attractive 28%, 27%, 57% and 52% discounts to specialty retail peer averages. Its PEG ratio of 0.2 reflects an 80% discount to estimated fair value. Shoe Carnival has grown earnings per share 16% a year, on average, since 2008. Its fiscal third-quarter adjusted earnings advanced 19% to 70 cents, exceeding researchers' consensus estimate by 7.4%. Sales grew 6.8%, beating consensus by 2.7%. Shoe Carnival has an 18% average earnings beat rate.

2. Vitamin Shoppe ( VSI) engages in the retail and direct marketing of vitamins and minerals.

Vitamin Shoppe's stock has returned 21% a year, on average, since 2008, beating specialty retail peers. It has advanced an impressive 70% in 12 months and 15% in just three. Of equity researchers evaluating Vitamin Shoppe, eight, or 89%, rate its stock "buy" and one ranks it "hold." None rank the equity "sell." Vitamin Shoppe has a median 12-month target of $37.12, suggesting a looming rise of 10%. Barclays, ranking the stock "overweight", values it at $40, consistent with a 19% gain. JPMorgan, on the other hand, predicts a marginal rise to $35.

The stock is expensive, based on peer valuation metrics, costing 34-times trailing earnings, 21-times forward earnings, 3.4-times book value and 1.3-times sales, premiums of 82%, 29%, 4% and 36% to specialty retail peer averages. Its PEG ratio of 1 indicates that the stock is fairly valued based on terminal growth rate estimates. Vitamin Shoppe's adjusted fourth-quarter earnings more than doubled to 22 cents, exceeding consensus by 4.3%. Its sales, up 11%, beat marginally. The operating margin widened from 5.4% to 6.9%.

1. The Finish Line ( FINL) is a mall-based retailer of athletic footwear, apparel and accessories.

The Finish Line's stock has surged 79% a year, on average, since 2008. It has advanced 39% in 12 months, but has fallen nearly 8% in three. Of stock analysts covering the equity, 13, or 93%, advise purchasing it and one recommends holding. None advocate selling the shares. The stock has a median target of $22.45, implying a 12-month rise of 32%. Sidoti & Co. values the equity at $26, consistent with a gain of 52%. Citigroup isn't as optimistic, ranking the stock "hold" with a $19 target. The Finish Line sells at sizable discounts to peer stocks.

It trades at a trailing earnings multiple of 15, a forward earnings multiple of 12, a book value multiple of 2, a sales multiple of 0.8 and a cash flow multiple of 7.2, 22%, 24%, 38%, 22% and 41% discounts to specialty retail industry averages. Its PEG ratio of 0.4 indicates a 60% discount to estimated fair value. The Finish Line's fiscal third-quarter adjusted earnings multiplied to eight cents, exceeding analysts' consensus estimate by 51%. Sales, up 8.7%, outperformed consensus by 4.4%. The Finish Line will report quarterly results Mar. 24.

-- Written by Jake Lynch in Boston.

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