This commentary originally appeared Jan. 13 at 10 a.m. EST on Real Money Pro -- the ultimate traders' resource for actionable trade ideas and in-depth market analysis. Click here to learn more.
Until the middle of 2005, the company that produced Candies footwear -- which some of you ladies may be wearing right now -- went by that precise name. The company then metamorphosed from a manufacturing company into a brand-licensing firm, and renamed itself Iconix (ICON).
Iconix owns a portfolio of well-known names that run from mass market right through aspirational luxury. Here is a list of their brands taken directly from the company's website.
The company has posted excellent growth, both in revenue and in earnings, since converting its business model. Here are Iconix's numbers from 2005 through 2011 (excluding non-recurring items).
The large jump in book value from 2005 to 2006 came from a well-timed secondary offering, when the shares were selling for a high multiple. The 2008-to-2009 recession temporarily interrupted the company's growth, but all metrics bounced back nicely with the general economy.
Last autumn's big market selloff knocked Iconix shares down from $26.05 to $14.36 -- and this despite the lack of any bad company-specific news. Shares have been in an uptrend since their final bottom in late November, and closed Thursday at $17.93.
Iconix sold for an average price-to-earnings ratio of 15.2x from 2005 to 2010, yet it's being offered at a tad under 10.8x last year's estimate. If the 2012 consensus view of $1.85 is on the mark, the forward multiple is an even lower 9.7x.
This isn't a home-run kind of stock, but I see no reason why Iconix can't trade for 13x earnings at some point again in 2012. That leads me to a target price of more than $24. If 34% is all it does, I'll be satisfied that.
Is that a reasonable goal? Why not? Iconix peaked at $24.50 in 2007, when it earned just $1 per share. I've already noted the stock's 52-week high of $26.05. Value Line assumes a normalized 15x multiple, and EPS of $2.60 within three to five years. Over that longer-term horizon, Value Line sees a $30-to-$45 range.
Traders might want to buy now, with an exit near $24. Investors looking for long-term gains, meanwhile, could see a double or better if they show some patience.