Are There Any Bargain Stocks in Teen Retail?

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AeropostaleIt's not easy being a teen. Impressing your peers with your fashion sense can get expensive. However, having good taste and being able to afford to flaunt it are two different things.

The teen retail industry relies on spendthrift young buyers. But in this penny-pinching environment, many parents can't fork over money for their trend-seeking teens. Even young people who are willing to work for spending money are hard pressed to find employment. Many have to compete with older workers for the kind of jobs that adults used to leave for the younger crowd. Right now, 24% of teens are unemployed. Three out of four U.S. teenagers can't find summertime gigs.

Despite the economy, some investors have been paying up for teen retail stocks, driving their prices higher and higher. However, a combination of high fashion and high prices doesn't necessarily earn any company a premium price tag -- or a place in your portfolio.

Careful bargain shopping can help investors discover excellent returns in a difficult sector. With malls chock full of teen retail choices, it pays to be picky. Keep these metrics in mind to separate the true bargains from the posers.

3 Retailers That Are Too Expensive

Abercrombie & Fitch (ANF) is known for its fashionable, high-priced apparel. Its stock looks no less pricey. Abercrombie's shares have surged by 126% over the last 12 months, and its price-to-earnings ratio is currently 36. Given the challenges facing the teen retail sector, I'm doubtful this stock can live up to investors' lofty expectations.

Hot Topic (HOTT) faces the tricky task of appealing to niche crowds and getting pop culture trends right. Swaying fickle teens toward trends like these is easier said than done. Hot Topic's shares have zoomed 63% higher in the last year, although this retailer wasn't even profitable in the last 12 months.

American Eagle (AEO) doesn't look too hot, either. Its shares have gained 23% in the last year, and although its price-to-earnings ratio of 17 sounds a lot cheaper than Abercrombie's, its actual operational performance has been tepid. Buyer, beware. Last quarter, its sales fell 6%, and its same-store sales plunged 8%. It also recently announced that it may close as many as 100 stores over the next several years.

The Price Looks Right for These Two Teen Stores

The news here isn't all bad. Even in a grim economy, investors can still find truly bargain-priced retail stocks.

Aeropostale (ARO) has recently fallen on some hard times, saddled with difficult comparisons to past years of outperformance. But it currently looks like a bargain, trading at a mere eight times earnings. Aeropostale also provides trendy teen clothing at cheaper prices than rivals like Abercrombie, giving it an extra edge in today's tough times.

Buckle ( BKE) is another great stock idea in the teen retail realm, with shares currently trading at 15 times earnings. It's proven that it can provide healthy gains in profit and sales, even when money's tight. Buckle's still firing on all cylinders, too: In June, its same-store sales surged 10.8%. Last quarter, sales rose an impressive 11.8%.

Motley Fool analyst Alyce Lomax does not own shares of any of the companies mentioned. The Motley Fool owns shares of Aeropostale.

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