Sorry!! The article you are trying to read is not available now.
Thank you very much;
you're only a step away from
downloading your reports.

Nine Things to Consider Before Trying on Hot Topic


In the early part of 2009, shares were on fire; since then they've cooled. Now what?

Shares of Hot Topic (HOTT) were hot as Hades in the early part of 2009, but are now as cool as a cucumber. But is now the time to belly up to the California-based retailer's shares or head for the exits? Here are some of my thoughts ahead of its fourth-quarter results, which are due out on March 10.

1. When I see Hot Topic I see a good chain -- a popular chain that has a large amount of growth potential in the future. After all, it's proven that it knows how to channel the attention of the younger crowd. But looking at it from an investment standpoint, my thinking is that patience will be key.

2. Estimates have been moving downward, which isn't especially stylish. Contrast this to a company like Gap (GPS) -- which I find leaps and bounds more appealing -- where estimates have been moving up. Meanwhile, the estimates for Zumiez (ZUMZ) have been rising, too.

3. While Hot Topic has beaten estimates in three of the past four quarters, it isn't the only company out there that's exceeding expectations. What Hot Topic really needs to do is blow out the top- and/or bottom-line number in a big way in order to get investors' attention and place it on institutional radar screens again. I also think it's critical that it does everything in its power to keep the stock north of $5; below that mark it will be tough to get attention.

4. Although its comp store results for February were better than expected, is -7% really something to jump up and down about?

5. With the shares in the lower-end of their 52-week trading range, it would sure be nice to see insiders try it on.

6. On the plus side, as of October 31 it sported just over $91 million in cash and cash equivalents and short-term investments. Not exactly Microsoft (MSFT), but it's a smidge over $2 a share by my math, which I'd like to think could give it some cushion on the downside.

7. As far as the fourth quarter is concerned, the Street is at $0.18, and I think it will at least meet that estimate and possibly exceed it by a penny.

8. I'd much rather bottom fish Hot Topic than Abercrombie & Fitch (ANF), which I think is way too expensive.

9. All told, I'm an optimist, and I think the shares mount a big comeback eventually. But I'd like to feel as though a catalyst is on the horizon before bellying up big-time. Right now, I don't see one, so I shall sit firmly on my hands.

Hey, have a great day!
No positions in stocks mentioned.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

Featured Videos