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Four Retail Stocks to Consider Following May's Better-Than-Expected Data

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Hhgregg, Inc., Barnes & Noble, Inc., J.C. Penney Company, Inc., and GameStop Corp. are all stocks to watch.

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The Department of Commerce released its May food and retail sales report on Thursday, and the numbers beat expectations. Sales increased by 0.6% from April 2013, which surpassed the median forecast of 0.4%, and by 4.3% from May 2012. On the other hand, the Thomson Reuters/University of Michigan June preliminary index of consumer sentiment fell to 82.7, declining from 84.5 in May and missing the median forecast of 84.5.

While consumer confidence may have dropped, last month's retail data is still encouraging to investors. In fact, stocks rallied on Thursday after the release of the Department of Commerce's report. So for this screen, we set out to find US retail stocks that are inspiring optimism amongst investors as illustrated by significant decreases in shares shorted month over month. Since short sellers benefit from falling share prices, the decline in shares shorted indicates that they expect the price to rise.

Finally, we looked for stocks that are undervalued as indicated by a low price/sales (P/S) ratio. A low P/S ratio means that the stock's price is cheap in comparison to the company's revenue. If a stock has a P/S below 1, it can be considered undervalued. It is important to note that the ratio doesn't factor in expenses or debt, and variation between industries is to be expected.

For the following list, we screened for stocks with P/S ratios under 2, which means that the company's market cap isn't more than two times its annual sales. Investors should note that the four listed stocks have all outperformed the market over the last quarter by more than 15%.

The List

1. hhgregg, Inc. (NYSE:HGG): Operates as a specialty retailer of consumer electronics, home appliances, and related services.

Market cap at $541.6 million; most recent closing price at $17.21.

Shares shorted have decreased from 5.04 million to 4.72 million over the last month, a decrease which represents about 2.27% of the company's float of 14.07 million shares. Days to cover ratio at 14.37 days.

Performance over the last quarter: 56.88%.

2. Barnes & Noble, Inc. (NYSE:BKS): Operates as a content, commerce, and technology company in the United States.

Market cap at $1.15 billion; most recent closing price at $19.44.

Shares shorted have decreased from 11.15 million to 8.13 million over the last month, a decrease which represents about 8.29% of the company's float of 36.43 million shares. Days to cover ratio at 5.87 days.

Performance over the last quarter: 18.18%

3. J.C. Penney Company, Inc. (NYSE:JCP): Through its subsidiary, J.C. Penney Corporation, Inc., operates department stores in the United States and Puerto Rico.

Market cap at $3.99 billion; most recent closing price at $18.15.

Shares shorted have decreased from 50.57 million to 39.66 million over the last month, a decrease which represents about 10.77% of the company's float of 101.27 million shares. Days to cover ratio at 2.36 days.

Performance over the last quarter: 17.93%.

4. GameStop Corp. (NYSE:GME): Operates as a retailer of video game products and personal computer (PC) entertainment software.

Market cap at $4.46 billion; most recent closing price at $37.53.

Shares shorted have decreased from 38.89 million to 34.04 million over the last month, a decrease which represents about 4.17% of the company's float of 116.34 million shares. Days to cover ratio at 8.92 days.

Performance over the last quarter: 48.93%.

Editor's note: This story by Mary-Lynn Cesar originally appeared on Kapitall.

Kapitall's lists break complex concepts down to their basics, offering education and investing ideas to novices that double as a refresher course for more seasoned investors. Inspired by video game design, Kapitall's revolutionary brokerage platform combines a graphical user interface with tools that make it easy to build portfolios, share ideas and execute trades.

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No positions in stocks mentioned.
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