Zumies Selloff Looks Overdone
One of the stock I recommended last week on TheStreet.com was Zumiez (ZUMZ).
The company reported earnings last week, so I cautioned that investors might want to only start a small position ahead of the report, in case there was an overreaction to earnings. And that is exactly what happened.
The company reported solid earnings, but the market only rewards a stock when the company handily beats estimates and raises guidance. Although ZUMZ did not do this, they still reported very solid growth. And that growth should continue.
My thesis did not depend on a single earnings report, but rather the attractive growth rates ahead at which I believe the company can continue to grow. There are not that many retailers growing at the rate of ZUMZ. As such, I think the stock can continue to garner a premium multiple in the market.
The company currently operates roughly 223 stores in 23 states. This leaves a lot of room for expansion as the company continues to rollout new stores and build out their national footprint. They cater to youngsters age 12-24, and focus on the alternative and extrmeme sports enthusiasts. I can relate to this demographic, as I used to be involved in these sports when I was growing up. But back then, instead of calling us "extreme" athletes, they just called my brother and me crazy.
Also, there are plenty of skeptics on the stock. The most recent short interest figures show that as a percent of float, short interest in the stock stood at a hefty 29%. That could result in a lot of short covering if and when the stock recovers and goes back to new highs.
A look at the chart above shows that the stock is now hitting some meaningful support. If this holds, I think the stock will begin to form a solid base from which it can then move higher.