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Guess? Inc.: On Sale

Shares of this denim maker plunged last week, offering a buying opportunity, according to one research firm.

Guess? Inc. reported record profits last week for the year ending December 31, 2005 -- and its price plunged from more than $46 to $37. Why? Because management offered conservative guidance on first quarter 2006 profits. But Zacks Equity Research thinks the selloff offers a terrific buying opportunity.

Guess (symbol GES) designs, sells and licenses casual apparel, especially denim, in the U.S. and abroad. The company operates 315 stores -- up 10% from last year -- and also sells its jeans over the Internet, to other retailers and via licenses for watches, handbags, shoes and the like. "Guess remains a popular brand for customers seeking denim fashions and accessories," says Zacks. "This is helping the company enjoy the favorable fashion cycle for denim and leading to strong sales growth."

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The numbers look good. Zacks expects per-share earnings to increase from $1.31 last year to $1.56 in 2006 and $1.90 next year. That gives the stock a price-earnings ratio of 24 on this year's estimate, and 20 on next year's. That's cheap measured against Zacks' forecast of several years of 20% earnings growth. The growth is being driven, Zacks says, not only by sales growth, but also by manufacturing efficiencies that are increasing profit margins. Zacks expects Guess to post double-digit operating margins the next three years.

--Steven Goldberg

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