Sally Beauty Holdings - Aggressive Growth

Sally Beauty Holdings, Inc. (SBH) has posted three consecutive earnings surprises, even as analysts have continuously raised forecasts.

This Zacks #1 Rank (Strong Buy) stacks up well against its peers and has a great long-term earnings trend.

Company Description

Sally Beauty is a beauty retailer with over 4,000 stores, in addition to outside sales consultants, in North America and Europe.

"Outstanding" Quarter

Sally's President and CEO called the fourth-quarter earnings results "Outstanding". The announcement came on Nov 18 and included and 11% increase in sales, to $748 million, driven by 5.3% same-store sales growth.

Adjusted earnings were up 48% to $142 million. This broke down to 23 cents per share, beating estimates by 3 cents. Sally Beauty has beaten for the past 3 quarters.

Estimates Up

Estimates for fiscal 2011 rose 4 cents on the earnings news, bringing the expected growth rate to 20%. Next year's forecasts were also up 4 cents on average, to $1.10. If expectations are met the growth rate will be 19%.

Valuations & Comparisons

Shares of SBH are trading at 15 times this year's estimates, which is in line with its peers. The price-to-sales ratio is currently 0.87, about the norm for this group. The PEG is slightly higher than I usually like, at 1.5 times, but if estimate keep rising that will come down.

Sally Beauty's ROE of 9.25% is one of the best in the group, as is the net profit margin of 4.9%.

The Chart

It is easy to get lost in the short term noise these days. But one of the best aspects of Sally Beauty Holdings is the steadily increasing earnings outlook. You can see below that the earnings trend for the past few years has been great and should extend into the future.

Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Small Cap Trader service
 
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