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Buckle Up for This Popular Hedge Fund Pick

This stock was bought by a surprising number of hedge funds in the 1st quarter

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May 20, 2022
Summary
  • Buckle is an established apparel retailer founded in 1948. They operate 440 stores across 42 U.S. states. 
  • The company is in a strong cash position and has invested a lot into digital marketing and new technology for inventory management. 
  • Buckle's financials are strong and operating income has doubled year over year. 
  • Despite being in the currently unpopular retail sector, Buckle was bought by several gurus in the 1st quarter.
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Buckle (

BKE, Financial) is an apparel retailer, which isn't exactly the kind of stock you'd expect to be popular among hedge fund managers in the current market environment. Yet, eight of the Premium gurus followed by GuruFocus were buying shares of the stock in the first quarter of 2022.

The hedge fund gurus buying the stock include value investors such as

John Hussman (Trades, Portfolio) and Joel Greenblatt (Trades, Portfolio) as well as gowth stock investors such as Catherine Wood (Trades, Portfolio). Even traders with unique investing strategies, such as Jim Simons (Trades, Portfolio) and Paul Tudor Jones (Trades, Portfolio), were buying the stock in the first quarter. For the three months ended in March, the stock traded at an average share price of $37.

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Buckle was founded in Nebraska in 1948. They had their IPO in 1992 and have kept their styles very relevant over this period. The business may not seem exciting at first glance, but the financials are excellent. The business does have tendencies for cyclicality, as do all retailers, but the combination of sales growth and declining share price is attractive.

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Business model

Buckle specializes in medium-priced fashion apparel for both men and women. They have grown to become one of America’s favorite destinations for edgy denim clothing. They operate 449 retail stores in 42 U.S. states and have a mission to “create the most enjoyable shopping experience possible for our guests.” This customer focus gives the company an edge over many retailers. They emphasize the “personal touch” for their customers and offer free hemming, gift wrapping and a customer loyalty program. As someone from the UK., I believe European retailers can learn a lot from this type of service.

The company has recently been revamping their digital marketing team and improved their brand to make it relatable and engaging. Their growth strategy is focused on guest engagement, personalized experiences and seamless shopping. They are even rolling out a video monitoring service for inventory management, which should help to boost margins.

Growing financials

Let's take a look at the company's most recent full year results for fiscal 2021. Revenue increased by a meteoric 43% to $1.2 billion in 2021, while Gross profit jumped by a substantial 63% to $653 million and operating income doubled to $335 million.

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The company’s margins have recently seen a sharp uptick, with a gross margin of 50% and an operating margin of 25%, which is fantastic for a company with brick and mortar retail locations.

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Buckle has a strong balance sheet with $266 million in cash and short term investments and no long-term debt outside of capital lease obligations, which is very surprising for a mature company.

Valuation

According to the GF Value line, the stock is “modestly undervalued” at the time of writing.

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The stock trades at an enterprise-value-to-Ebitda ratio of 4.28, which is at the low end of values seen since 2010.

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Buckle is a very surprising company; at first glance, it looks like a typical brick and mortar retail chain, but its company culture and financials are spectacular. Thus, it's no longer a surprise to me that this is was a popular pick among gurus in the first quarter.

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Disclosures

I/we have no positions in any stocks mentioned, and have no plans to buy any new positions in the stocks mentioned within the next 72 hours. Click for the complete disclosure
Rating:
4 / 5 (2 votes)
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