Here's Why It's Time to Buy Carter's Stock

After hitting a 52-week high in August, shares of Carter's  (CRI)  , at close to $88, are down about 2%. At the current valuation, this is an attractive entry point. This baby could go higher.

Apparel makers have seen their share prices wrecked by the strong dollar, the decline in department store sales and fewer international tourists. But apparel maker Carter's makes clothing for infants and young children and should be able to shake off most of those factors. Carter's operates the Carter's brand and OshKosh.

On Oct. 28, Carter's reported earnings per share of $1.61, 6 cents lower than the consensus. Sales of $901.4 million were up 6.1%. Operating margins fell 80 basis points to 14.6%.

Carter's retail same-store sales fell 4.1% as the company transitioned to fall apparel and sell through was limited because of unseasonably warm weather. The company ended the quarter with 636 stores, of which 440 branded stores and 196 outlet stores. Side-by-side stores (Carters and OshKosh represent 20% of the store base.)

Inventory was up 8% due to the addition of new stores and business growth. Carter's brand sales were up 5%, OshKosh was up 6% and the international business rose 12%.

Adjusted net income was $81.1 million, up 9% and adjusted EBITDA rose 16.5% to $148.9 million. Selling, General Administrative expenses rose 11%, primarily due to the additional of 110 net new stores.

The fastest-growing part of Carter's business is e-commerce. OshKosh saw double-digit sales growth and a 34.8% comp in e-commerce. E-commerce is now 22% of OshKosh's business. Carter's rolled out a direct relationship with Amazon (AMZN) for a full-line Carter's branded store.

Carter's stock has been under pressure as investors are concerned over low spring 2017 orders and excess inventory, but I think those concerns are overblown.

Normally investors are concerned when inventory is growing faster than sales, but sales were up 6% and inventory was up 8%. To me, that's more of a timing issue with seasonal merchandise coming in and the new stores being outfitted. The 2% difference is not a looming disaster. For apparel makers, slow department store orders are pretty much expected. the company can make up the difference online and through their own stores.

Carter's just opened its first two stores in China and plans to open an additional 40 next year and as many as 200 stores within five years. The company also plans to open smaller, 5,000 square foot stores that feature the company's most productive styles.

For fiscal 2016, the company sees 9% to 10% earnings growth, which works out to $5.10 a share. Sales are expected to increase between 5% and 6%.

Next year, analysts forecast sales growth of 6.5% to $3.4 billion and earnings growth of 10% to 12%, or $5.70. At $88, the shares are only trading at 15 times forward estimates. If other apparel makers, such as Ralph Lauren  (RL) regularly trade between 16 to 20 times estimates, there should be room for Carter's shares to go higher, especially if the company can put to bed investor concerns regarding inventory and seasonal sell-through of fall apparel.

I think this baby could go higher.

This article is commentary by an independent contributor. At the time of publication, the author held no positions in the stocks mentioned.

More from Opinion

It's Just Not Smart For Investors to Ignore the Threat of a Trade War

It's Just Not Smart For Investors to Ignore the Threat of a Trade War

To Think a Trade War's Still Just a Threat Is the Dumbest Thing on Wall Street

To Think a Trade War's Still Just a Threat Is the Dumbest Thing on Wall Street

Flashback Friday in Politics: Trade Wars, Manafort, Immigration Dominate Minds

Flashback Friday in Politics: Trade Wars, Manafort, Immigration Dominate Minds

Microsoft and Sony's Rumored Game Console Plans Bode Well for AMD

Microsoft and Sony's Rumored Game Console Plans Bode Well for AMD

Apple Supplier Jabil Is Tumbling, But Its Sales Momentum Remains Strong

Apple Supplier Jabil Is Tumbling, But Its Sales Momentum Remains Strong