J. Crew Shares Are Overvalued

The retailers have been on a run. The Retail HOLDERs (RTH) has bounced roughly 40% off of the bottom in early March. While signs of “green shoots” have become evident, one wonders whether the cause is underlying business strength or the sugar high of a huge stimulus package working its way through the system. What is more obvious is that the consumer will not lead us out of this recession. In fact, the consumer will face headwinds for a time due to an increased savings rate needed to work off an over-leveraged balance sheet.

Given the headwinds to the consumer and diminished disposable income available for discretionary purposes, I would expect the retailers to continue to be under pressure. However, this has not been the case. As an example, J. Crew (JCG) has more than quadrupled off of a year low of $8/share. While J. Crew is a great brand in the retail space, I believe shares more than value this.