October 15, 2008

A Bottom for Bare Escentuals?

According to this article, the Fool has picked Bare Escentuals as a Hidden Gems and Rule Breakers selection. With the stock only a few cents from its 52 week low, this may be cause for a buying opportunity.

The stock does look cheap from a numbers standpoint. Its current P/E is under 8 and its forward P/E (for fiscal year end 2009) is under 7. The stock also sports a PEG ratio of .42.

The company does seem to have a faithful following of consumers who love their product. In fact, my wife tried their products for the first time a couple of months ago, and just like the women in their commercials absolutely love the product.

However, with the state of the economy, when her supply of the makeup runs out, we will seriously have to consider if we are going to reorder. Even though the product is great, she would be willing to try one of the other less expensive mineral makeup lines to see if they work just as well.

I suspect that this may the case for a lot of customers. If belt tightening is going on in households, high priced make-up may be one of the first things to go, and Bare Escentuals bottom line may suffer as a result.

At this point, I see the stock as a crap shoot, as the stock could continue to fall or shares could begin to recover. Cautious investors may want to wait until their next earnings report to see how the company did in the 3rd quarter and if they issue any guidance for next year.

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