How to Invest in a Fashion Business Company
Fashion is a multi-billion dollar industry. While most of us see it as the clothes we wear to work or school, there is a business side. Movies such as The Devil Wears Prada provide some insight into the business of fashion. The good news is that you don't have to be "the dragon lady" in order to benefit from the fortunes of fashion; you just have to know the right fashion business companies to invest in.
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Instructions
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Begin by doing your research. Yahoo! Finance is one of the most popular financial research portals on the Internet according to Alexa.com. Go to the industry section and click on Apparel Stores (see Resources for a direct link). These are all the major (and public) companies in the fashion business.
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Look at the Industry Top Performers by Valuation. You can use almost any valuation you would like, from price performance to earnings per share. Let's use P/E Ratio.
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Review the definition of P/E ratio. A P/E ratio is the number of times earnings goes into the price of a stock. Investors look at this as a price tag to compare companies in the same industry. A high stock price and low earnings per share lead to a high P/E ratio as it should. The ratio is telling you that the stock is overbought and that the price is out of alignment with earnings. Stocks with low P/E ratios are seen as being bargains; that is, low prices with higher earnings per share. You want the stock with the low price tag or P/E ratio.
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Research the stock on the "Laggards" list. Currently, BUCKLE INC [BKE], Jos. A. Bank Clothiers, Inc. [JOSB], AEROPOSTALE INC [ARO], The Gymboree Corporation [GYMB], The Children's Place Retail Store [PLCE], CATO CORP CL A [CATO], Hot Topic, Inc. [HOTT], Ross Stores, Inc. [ROST], The Wet Seal, Inc. [WTSLA], and GAP INC [GPS] are at the bottom of the Apparel Industry P/E ratio list. Investigate why this is. Is it because of poor management or poor investor relations or is there a high degree of debt? Look at profitability ratios and growth plans for the future.
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Choose at least 5 companies with low P/E ratios and track them over time. You can also track companies with high P/E ratios to purchase once the price becomes more attractive. Fundamental analysis (valuation analysis and industry research) will tell you what to buy. Technical analysis (charting and tracking the price movement over time) will help to determine when to buy.
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Take note of the ticker symbol and decide how much you wish to invest. Contact your broker and place an order. You can also look for mutual funds in the apparel/fashion business; that is, mutual funds which hold some of the stocks you researched in Step 4.
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