The second investment I will be discussing in my investment series is Urban Outfitters (URBN). Urban Outfitters is a retail store that operates four brands: Urban Outfitters, Anthropologie, Free People, and Terrain. According to the company, the Urban Outfitters brand targets young adults ranging from 18 to 30 years old; the Anthropologie brand targets sophisticated and contemporary women from 30 to 45; the Free People brand targets young contemporary women aged 25 to 30; and the terrain brand is targeted to both men and women interested in outdoor living and gardening.
I knew very little about this company before I decided to buy some stock. Oh by the way, I hate to shop! Thus, I really knew next to nothing about Urban Outfitters. However, I did know that there were two stores that my girl friend loved to shop at: Urban Outfitters and Anthropologie. At the time, I had no idea that Anthropologie was operated by Urban Outfitters. After doing a little reasearch on the company, I found this connection and began to do some further analysis on URBN.
There were a couple things that stuck out to me as soon as I started looking into the stock.
1) The company has a lot of room to grow. As of January 31, 2010 it operated the following numbers of stores:
- Urban Outfitters – 155 (plans to add 19 stores in fiscal 2011)
- Anthropologie – 137 (plans to add 17 stores in fiscal 2011)
- Free People – 34 (plans to add 9 stores in fiscal 2011)
- Terrain – 1
Comparing this with a competitor such as Abercrombie & Fitch, which operated 1,096 stores as of January 31, 2010, you can see Urban Outfitters has not overly saturated the market and has a lot of room for growth.
2) The management team has been around for quite some time with a track record of success and hold a significant number of shares in the company.
3) The P/E of the company seemed to have the company fairly valued at around 20 (the average for the industry is around 22), but the PEG ratio was well under 1. With the growth rate factored in, the company seemed undervalued.
4) The company’s net profit margin was around 12% while the industry average was around 4%.
The more I looked, the more I liked the company and decided to buy some shares. Below is a look at how my shares of URBN performed.
**August performance for the S&P 500 is a partial month to match my investment date in URBN.
As you can see, URBN underperformed the S&P 500 by a significant margin from August 2010 to October 2010. However, the company reported strong results in November 2010 and had a phenomenal month. At that point, I was satisfied with my 15% return in 4 months and decided to sell my shares and move on.
Here are the returns for URBN during the time I held shares.