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Specialty Retailer (No, Not Apple) Stock Hit by Selloff: A Bargain Now?

For all the hubbub surrounding Apple’s (AAPL) retailing success, maybe it’s time to look further afield – to Nebraska, say, the home of Cabela’s (CAB) – in search of the next hot retailing concept stock. Cabela’s products couldn’t be more different than Apple’s sleek electronic gizmos – it offers everything from hiking shoes and sleeping bags to fishing rods and rifles – but its model obviously is popular with investors, given that its price/sales ratio is climbing at a far more rapid clip than that of Apple.

CAB Price / Sales Ratio TTM Chart

CAB Price / Sales Ratio TTM data by YCharts

True, the company’s PE ratio has climbed significantly of late, but it’s still changing hands for only about 18.5 times trailing 12 month earnings. And the growth in the company’s earnings has been more impressive than that of its valuation, signaling that relative to history, it’s still affordable.

CAB PE Ratio TTM Chart

CAB PE Ratio TTM data by YCharts

One of the stock’s long-time fans, Mark Mulholland, manager of the top-performer Matthew 25 mutual fund, remains a big fan of the stock, despite his emphasis on value and the stock’s big gains in price and valuation. Particularly important to Mulholland and other investors like him is the fact that Cabela’s continues to see positive gains in revenue as well as profits, even if that growth rate has slowed somewhat in recent months.

CAB Revenue Quarterly YoY Growth Chart

CAB Revenue Quarterly YoY Growth data by YCharts

Cabela’s will benefit from the ongoing boom in gun sales, but also from interest in perennial American pastimes like fishing and camping. The company appears to be coming to grips with past challenges managing inventories: the average days inventory outstanding peaked at a lower level this summer than the metric did in the summer of 2011, even as the gross margin rose over the previous summer’s highs.

The stock lost some of its luster late last month after reporting that its third-quarter revenues didn’t measure up to Wall Street’s expectations. That was enough to trigger an 18% selloff in a single day amid the jittery market environment that has prevailed in recent weeks. Still, Cabela’s announced a 9% increase in revenue and 28% jump in net income for the period, and an increase in advertising plans could spur further gains for the fourth quarter.

Suzanne McGee is a contributing editor at YCharts, which includes the just-released YCharts Pro Platinum for professional investors.

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