Can Men’s Wearhouse Continue This Bullish Run?

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With shares of Men’s Wearhouse (NYSE:MW) trading around $37, is the company an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our Cheat Sheet investing framework:

T = Trends for a Stock’s Movement

Men’s Wearhouse is a specialty retailer of men’s suits and a provider of tuxedo rental products in the U.S. and Canada. The company operates 1,049 stores in the U.S. and 117 stores in Canada in two segments, retail and corporate apparel, operated under the brand names of Men’s Wearhouse, Men’s Wearhouse and Tux, K&G, and Moores Clothing for Men. Men’s Wearhouse also offers dry cleaning and laundry operations through MW Cleaners. Men’s suits will always be in demand — the styles have stood the test of time. Look for Men’s Wearhouse to continue to provide its customers with the products and services needed to always look their best.

T = Technicals on the Stock Chart are Strong

Men’s Wearhouse stock has seen a fair amount of progress in recent years. The stock is now trading near highs established last year, so it may be a bit of time before its next leg rises. Analyzing the price trend and its strength can be done using simple moving averages. The key moving averages are the 50-day (pink), 100-day (blue), and 200-day (yellow). As seen in the daily price chart below, Men’s Wearhouse is trading above its rising key averages, which signal neutral to bullish price action in the near-term.

MW

Taking a look at the implied volatility and implied volatility skew levels of Men’s Wearhouse options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Men’s Wearhouse Options

31.06%

13%

11%

This means that investors or traders are buying a minimal amount of call and put options contracts, compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of Tuesday, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very minimal amount of call and put option contracts and are leaning neutral to bullish in the next two months.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates, and the last four quarterly earnings announcement reactions help gauge investor sentiment on Men’s Wearhouse’s stock. What do the last four quarterly earnings and revenue growth (ar-over-year) figures for Men’s Wearhouse look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

25.00%

-9.21%

23.38%

5.50%

Revenue Growth (Y-O-Y)

5.11%

8.23%

7.93%

1.03%

Earnings Reaction

5.67%

19.09%

-2.67%

18.68%

Men’s Wearhouse has seen increasing earnings and revenue figures over the past four quarters. From these numbers, the markets have been very happy with Men’s Wearhouse’s recent earnings announcements.

P = Poor Relative Performance Versus Peers and Sector

How has Men’s Wearhouse stock done relative to its peers, Jos. A. Bank (NASDAQ:JOSB), Express (NYSE:EXPR), Destination XL (NASDAQ:DXLG), and the sector?

Men’s Wearhouse

Jos A Bank

Express

Destination XL

Sector

Year-to-Date Return

19.14%

-3.05%

35.52%

45.95%

30.11%

Men’s Wearhouse has been a poor relative performer, year-to-date.

Conclusion


Men’s Wearhouse provides elegant men’s apparel that has remained a staple in every man’s closet in the U.S. and Canada. The stock has been on a path toward higher prices but is now moving sideways before continuing on its next leg. In the past four quarters, investors in the company have been happy as earnings and revenue figures have been on the rise. Relative to its peers and sector, Men’s Wearhouse has been an average year-to-date performer. Look for Men’s Wearhouse to continue to OUTPERFORM.

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