Deutsche Thinks This Retailer Is Too Cheap to Pass Up

Deutsche Thinks This Retailer Is Too Cheap to Pass Up

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Vitamin Shoppe popped 4% today after Deutsche Bank initiated coverage on the nutritional products retailer with a buy rating.

So what: Along with the rating, analyst Karen Short planted a price target of $52 per share on the stock, representing about 24% worth of upside to its Wednesday close. Vitamin Shoppe has been dealing with some headaches lately related to its recent Super Supplements acquisition and a new distribution center, but Short believes that the current valuation offers plenty of upside as things gradually improve.

Now what: Short thinks it's only a matter of time before the fundamentals start to turn.

"While we see the lumpiness persisting through FY13, we believe the current level presents investors with an attractive entry point for the following reasons: 1) ROIC should begin to improve once VSI cycles both the new DC costs and acquisition integration costs, 2) with ROIC improving, we expect the valuation multiple to expand, 3) we believe VSI will continue to gain share in the high-growth health supplements space, so we believe the long-term growth story is intact," said Short.

When you combine those still-attractive growth prospects with Vitamin's slumping stock price and rock-solid balance sheet, it's tough to argue with Deutsche's view that the risk/reward looks rather appealing.

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