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Company name The Gymboree Corporation
Stock ticker GYMB
Live stock price [stckqut]GYMB[/stckqut]
P/E compared to competitors Good
MANAGEMENT EXECUTION
Employee productivity Poor
Sales growth Poor
EPS growth Good
P/E growth Poor
EBIT growth Good
ANALYSIS
Confident Investor Rating Fair
Target stock price (TWCA growth scenario) $40.13
Target stock price (averages with growth) $36.32
Target stock price (averages with no growth) $44.26
Target stock price (manual assumptions) $43.92

Confident Investor comments: At this time, I think that a Confident Investor can cautiously invest in this stock as long as the price is correct. Most of the fundamentals of this company are good but there are some concerns.

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Earlier, I spoke about the earning estimates of the “experts” and that, at least in the case of Target [stckqut]TGT[/stckqut], the numbers didn’t make sense for a 5-year projection of their earnings growth.

Let’s dig in a bit deeper. We will stay with MSN Money (I am not beating up MSN Money – it is simply reporting data supplied by others – you can find the same numbers at Morningstar or probably your favorite broker’s website). A few items below Earnings Estimates, you will see Financial Results and then Statements will appear and it will show a page that includes a tab for 10 Year Summary.

Let’s compare Sales over the last 10 years to Earning before Interest and Taxes (EBIT). We can quickly calculate that Earnings has varied from about 5.5% to 7.5% and averages about 6.3%. We can also see that for the last couple years, Target has been a bit below average on its Earnings compared to Sales (5.92% for last year).

Earlier, we saw that the analysts are saying the company is going to increase earning 12% per year for the next five years. That would mean that either Sales are going to increase at 12% (something that when you look at the Sales column hasn’t happened in the last 3 years) OR the earnings/sales would have to increase very dramatically – something that also has not happened in the past.

My prediction is that Target will not grow earnings at greater than 12% per year for the next 5 years. The evidence of the company to pull off that level of performance is simply not available.

A quick side note – why do I care about earnings growth? Simple, earnings growth should result in a higher stock price meaning my investment in the company will continue to appreciate. The growth of one company compared to another company is a major factor in my decision to invest my hard-earned capital in any given company. I want to maximize my rate of growth of my investment – don’t you?

P.S. Tomorrow, I will post my analysis on Target Corporation. Sorry to use them as my whipping boy for this commentary.