When the Market Hands You a Lemon, Make Lemonade Out of It

G-III Apparel has been on my buy list for quite a while. Management had been guiding for about $3.70 per share in fiscal 2022, which ends Jan. 31, and the shares looked cheap on Nov. 30 at a closing quote of $21.63. Oops. When the latest quarterly numbers were released, earnings per share, though decent, were less than expected. Worse, the company announced that its new guidance for this year is now centered on $2.95, about 20.2% below their previous hopes. During the conference call they noted that PV H Corp. would probably not be renewing their licenses for both Calvin Klein and Tommy Hilfiger after the newly inked deals extending GIII's use of those brand names through 2025 and 2027 respectively. Market reaction was brutal. GIII's shares dropped by over 45% intraday to as low as $11.82. The deals with PVH still have over two to four years to run. The new projected earnings would still be the company's second-best year in history. At $12.15 the trailing P/E is only 4.1-times. That is the lowest multiple on this stock ever. G-III is no stranger to volatility. Its 2.05 beta marks its movement at greater than twice that of the average stock. Since peaking in April of 2011, there have been 5 major selloffs and four much larger rebounds. Details are shown below. Buyers who bought in after those declines ended up with chances at average gains of 529% on typical holding periods of 19-months. The best two gains were astonishing, at 749% and 1,093%. Seeing a stock that you already hold get dumped like this is maddening. But ... buying more after serious declines has always worked out well in the past. Those who picked up G-III below $5 during the Covid panic saw it surge quickly by over 1,000%. I believe this will prove to be yet another great entry point for traders with reasonable time horizons. Reverting to a still sub-par 10 P/E could send GIII back toward s the $29 - $30 level in short order. That is far from an upper limit. GIII peaked at $31.70 this year and offered exit prices between $34.40 and $73.90 during each of the previous nine previous years. Before today's news research house Morningstar said GIII's present day fair value was $39.86. Cut that down by one third and it is still worth at least north of $26 right now. Buying when others are frantically dumping takes courage. It also tends to pay off hugely down the road as happened before with this stock. Purchasing shares outright is the best way to obtain unlimited upside with no preset time horizon. Option savvy traders who want an extra degree of safety and/or a nice profit just for committing to buy even lower might wish to sell Dec. 15, 2023 expiration date puts on GIII. Actual pricing on its $12.50 and $15.00 strike price puts, with GIII at $12.15, are shown below. Worst-case, forced purchase prices dropped to either $9.60 or $10.50 respectively. Further downturns of from 13.5% to 20.9% would not even hurt sellers of those puts. Rebounds above the strike prices by Dec. 15 of next year would see them expire worthless. On 10 contracts the worst-case outlay would be either $9,600 or $10,600 depending on the strike price employed. Potential best-case gains would be $2,900 or $4,500 if the options expire unused. Future stock market action can never be guaranteed. That said, the chart below shows that owning GIII at the $9.60 break-even on the more conservative puts would have been a winning position 100% of the time dating back more than two full years. Buy some G-III shares, sell some puts or consider doing both.

When the Market Hands You a Lemon, Make Lemonade Out of It

Look what happened with G-III Apparel. If you're holding the stock, I've got a plan for what to do next.

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