Cato Corporation – Cheap and unfollowed

The Cato Corporation operates as a fashion specialty retailer for fashion and value conscious females principally in the southeastern United States. Its stores offer an assortment of apparel and accessories, including dressy, career, and casual sportswear; dresses; coats; shoes; lingerie; costume jewelry; and handbags. As of January 29, 2011, the company operated 1,282 women’s fashion specialty stores in 31 states under the Cato, Cato Fashions, Cato Plus, It’s Fashion, and It’s Fashion Metro brand names. The Cato Corporation also provides its own credit card and a layaway plan for customers to purchase its merchandise. The company was founded in 1946 and is based in Charlotte, North Carolina. Their mission as per their facebook page is “New fashions every week. Low prices every day.”

I believe shares of CATO are undervalued. Read the rest of the report on

Disclosure: No position in CATO at the time of writing. This is not a recommendation to buy or sell any security mentioned in this article. Please do your own research or consult your financial advisor.

About Adib Motiwala

Portfolio Manager at Motiwala Capital LLC
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3 Responses to Cato Corporation – Cheap and unfollowed

  1. Balaji Sridharan says:

    Very interesting analysis!

    I agree (based on your research) that it looks a cheap stock…

    I am just wondering how sustainable the ROE of 18% with the input costs increasing…

    Also, did you find any competitive edge for this company over it’s competitors? Considering that this is a very competitive industry, till the markets wakes up to the mis-pricing, we will be sitting on a stock that will compound its return on capital at (12-14%) approx. In my opinion, a businesses with higher Return on Total capital slightly higher than the 16-18% might be safer (with a larger margin of safety)

    I will be interested to hear your thoughts….

  2. Nice analysis. CATO seems to have carved out a good niche. CBK is another name to look at in the sector, although has not fared as well as CATO the last few years. A turnaround story and may be cheap to normalized earnings. I covered it here-

    • adibmoti says:

      thanks Elie. Looked for a min at CBK. Yes, if sales can improve then they can return to profitability and be FCF positive. Much tougher for me to go this one when you have profitable firms that trader cheaper like CATO.