1-Star Stocks Poised to Plunge: Hot Topic?

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Based on the aggregated intelligence of 180,000-plus investors participating in Motley Fool CAPS, the Fool's free investing community, specialty retailer Hot Topic (NAS: HOTT) has received the dreaded one-star ranking.

With that in mind, let's take a closer look at Hot Topic's business and see what CAPS investors are saying about the stock right now.

Hot Topicfacts

Headquarters (Founded)City of Industry, Calif. (1988)
Market Cap$355.7 million
IndustryApparel retail
Trailing-12-Month Revenue$707.8 million
Management

CEO Lisa Harper (since March 2011)

CFO James McGinty (since February 2001)

Return on Equity (Average, Past 3 Years)1.2%
Cash/Debt$72.55 million / $0
Dividend Yield3.5%
Competitors

Abercrombie & Fitch (NYS: ANF)

Wet Seal

Sources: Capital IQ (a division of Standard & Poor's) and Motley Fool CAPS.

On CAPS, 45.5% of the 380 members who have rated Hot Topic believe the stock will underperform the S&P 500 going forward. These bears include PWorm and TMFBiggles.

A couple of months ago, PWorm tapped Hot Topic as a particularly unfashionable pick:

Fad clothes in a dying mall environment. "Hot Topic kids" are viewed as uncool. The company is losing money and it won't be long before it is forgotten.

In fact, Hot Topic sports a paltry three-year average operating margin of 1.3%. That's much lower than that of other teen apparel plays like Abercrombie (7.9%), Aeropostale (NYS: ARO) (14.9%), and American Eagle (NYS: AEO) (9.7%).

CAPS member TMFBiggles offers an angst-filled case against the stock:

A poem for Hot Topic, in the style of a typical Hot Topic customer:

Despair! My black, black soul.
Blacker than my vinyl knee-high boots, bought for $99.
The stock price is so high ...
It can only crash, like waves of angst upon my heart,
Which is also black,
A color Hot Topic's balance sheet so sorely needs.
Down! It shall crash! Crash down. Woe is me.
If only I could afford a pithy Spongebob T-shirt to express my woe,
But I am poor.
No one will hire me because of my woe, so I cannot spend much money
At Hot Topic any more.

What do you think about Hot Topic, or any other stock for that matter? If you want to retire rich, you need to protect your portfolio from any undue risk. Staying away from dangerous stocks is crucial to securing your financial future, and on Motley Fool CAPS, thousands of investors are working every day to flag them. CAPS is 100% free, so get started!

Interested in another easy way to trackHot Topic?Add it to your watchlist.

At the time this article was published Fool contributorBrian Pacamparaowns no position in any of the companies mentioned. The Motley Fool owns shares of Aeropostale. Try any of our Foolish newsletter servicesfree for 30 days. Foolish newsletter servicesfree for 30 daysWe Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Fool'sdisclosure policyalways gets a perfect score.

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