Why Analysts Are Wrong About Urban Outfitters

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At my last check, retailer Urban Outfitters' (NAS: URBN) shares had plunged about 18% today. Why? Because CEO Glen Senk has abruptly resigned, and several Wall Street analysts have broadcast bearish signals on the stock. However, investors should remember others' misjudgments make the best opportunities to buy, and I believe that's the case with Urban Outfitters today.

Granted, abrupt CEO resignations are hardly ever positive news, but in this case, Chairman Richard Hayne is returning to the CEO role. Here's why that's no reason to panic: Hayne actually co-founded Urban Outfitters in 1970.

Citi Investment Research's Jeff Black added to investors' panic by cutting his rating on the stock to "sell," stating his belief that while Hayne has been a "guiding presence," he hasn't had a strong hand in daily management of the retailer since Senk took the CEO role in 2007.

Jefferies' Randal Konik was quoted as stating Senk's departure "puts the company's strategic direction in question," but again, I repeat, Hayne built this company. I'm pretty sure he's got strategic directions down pat.

Analysts are entitled to their opinions, but I'd rather see a founder take the reins rather than anybody else when a chief executive officer departs. If they built it, it's likely they have passion for it, too.

And hey, as much as a founder returning to the CEO role may not be an automatic magic bullet to overnight stunning success, remember when investors cheered when Starbucks' (NAS: SBUX) Howard Schultz returned to the CEO position after having served as chairman for seven years? It's funny how such news can result in a rally or a rout.

Urban Outfitters' disclosure of Senk's departure says he plans to "pursue another opportunity," and of course, in corporate press release parlance, that could mean anything. If there's any real risk here, I'd say that it could be Senk heading to some struggling competitor.

There are a few retail and consumer goods companies in need of good management; CEOs have recently hit the exits at Talbots (NYS: TLB) and Avon Products, and heck, maybe longtime retail strugglers like Gap (NYS: GPS) or American Eagle Outfitters (NYS: AEO) could use some fresh, fashionable talent at the top. And Senk is definitely a solid, merchant-minded executive. These two companies have underperformed the S&P 500 by 13% and 9%, respectively, for the last 12 months.

Regardless, having held on to some Urban Outfitters shares through thick and thin (I bought before Glen Senk was named CEO, so it's been a while, by the by), I see today as yet another one of those buying opportunities for investors. Senk may be ditching Urban Outfitters and heading to the as-yet-undisclosed exurbs somewhere, but that doesn't mean investors need to join the exodus. In fact, today's drubbing makes it look like prime real estate at a better price for potential buyers.

If you're not in the mood to buy on the bloodbath, add Urban Outfitters to your Watchlist to wait and see if today's panic is really warranted.

At the time this article was published Alyce Lomax owns shares of Urban Outfitters and Starbucks. The Motley Fool owns shares of Gap and Starbucks. Motley Fool newsletter services have recommended buying shares of Starbucks. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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