Does Men’s Wearhouse Suit Your Portfolio?

With shares of Men’s Wearhouse (NYSE:MW) trading around $38, is MW an OUTPERFORM, WAIT AND SEE or STAY AWAY? Let’s analyze the stock with the relevant sections of our CHEAT SHEET investing framework:

T = Trends for a Stock’s Movement

Men’s Wearhouse is a specialty retailer of men’s suits and a provider of tuxedo rental products in the U.S. and Canada. The company operates 1,049 stores in the U.S. and 117 stores in Canada in two segments, retail and corporate apparel, operated under the brand names of Men’s Wearhouse, Men’s Wearhouse and Tux, K&G, and Moores Clothing for Men. Men’s Wearhouse also offers dry cleaning and laundry operations through MW Cleaners. George Zimmer, founder and former Executive Chairman, has been fired and actually revealed, in an open letter, that he planned to take the company private because the company was being steered in a direction he didn’t like. However, investors today seem to like the move. Men’s suits will always be in demand — the styles have stood the test of time. Look for Men’s Wearhouse to continue to provide its customers with the products and services needed to always look their best.

T = Technicals on the Stock Chart are Strong

Men’s Wearhouse stock has witnessed a powerful move higher in recent years. The stock is now bumping-up against previous multi-year highs not seen since last year. Analyzing the price trend and its strength can be done using key simple moving averages. What are the key moving averages? The 50-day (pink), 100-day (blue), and 200-day (yellow) simple moving averages. As seen in the daily price chart below, Men’s Wearhouse is trading above its rising key averages which signal neutral to bullish price action in the near-term.

MW

(Source: Thinkorswim)

Taking a look at the implied volatility (red) and implied volatility skew levels of Men’s Wearhouse options may help determine if investors are bullish, neutral, or bearish.

Implied Volatility (IV)

30-Day IV Percentile

90-Day IV Percentile

Men’s Wearhouse Options

29.85%

13%

10%

What does this mean? This means that investors or traders are buying a very small amount of call and put options contracts, as compared to the last 30 and 90 trading days.

Put IV Skew

Call IV Skew

July Options

Flat

Average

August Options

Flat

Average

As of today, there is an average demand from call buyers or sellers and low demand by put buyers or high demand by put sellers, all neutral to bullish over the next two months. To summarize, investors are buying a very small amount of call and put option contracts and are leaning neutral to bullish over the next two months.

On the next page, let’s take a look at the earnings and revenue growth rates and the conclusion.

E = Earnings Are Increasing Quarter-Over-Quarter

Rising stock prices are often strongly correlated with rising earnings and revenue growth rates. Also, the last four quarterly earnings announcement reactions help gauge investor sentiment on Men’s Wearhouse’s stock. What do the last four quarterly earnings and revenue growth (Y-O-Y) figures for Men’s Wearhouse look like and more importantly, how did the markets like these numbers?

2013 Q1

2012 Q4

2012 Q3

2012 Q2

Earnings Growth (Y-O-Y)

25.00%

-9.21%

23.38%

5.50%

Revenue Growth (Y-O-Y)

5.11%

8.23%

7.93%

1.03%

Earnings Reaction

5.67%

19.09%

-2.67%

18.68%

Men’s Wearhouse has seen mostly increasing earnings and revenue figures over the last four quarters. From these numbers, the markets have been upbeat about Men’s Wearhouse’s recent earnings announcements.

P = Average Relative Performance Versus Peers and Sector

How has Men’s Wearhouse stock done relative to its peers, Express (NYSE:EXPR), Jos. A. Bank (NASDAQ:JOSB), Destination XL (NASDAQ:DXLG), and sector?

Men’s Wearhouse

Express

Jos. A. Bank

Destination XL

Sector

Year-to-Date Return

21.25%

38.10%

-5.19%

52.38%

32.19%

Men’s Wearhouse has been an average relative performer, year-to-date.

Conclusion

Men’s Wearhouse provides elegant and sought after apparel for men that fit styles around the world. The stock has been on a powerful run but is now bumping up against critical price levels not seen since last year. Over the last four quarters, investors in the company have been upbeat as earnings and revenue figures have been rising. Relative to its peers and sector, Men’s Wearhouse has been an average year-to-date performer. Look for Men’s Wearhouse to OUTPERFORM.

Using a solid investing framework such as this can help improve your stock-picking skills. Don’t waste another minute — click here and get our CHEAT SHEET stock picks now.

More from The Cheat Sheet