Is Men's Wearhouse Stock a Buy?

After hitting a 52-week low of just under $40 a share back in December as profits missed forecasts, men's clothing retailer Men's Wearhouse staged a dramatic comeback and its stock has soared 38% since that deep winter freeze.

A sharp change in fortunes like that is always welcomed by existing shareholders, but now with its stock closing in on its 52-week highs again, deciding whether to suit up with the clothier's stock at this point comes down to deciding whether you think there is still room to run or if you've missed your chance?

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A double cup of JoeTwo acquisitions in two years is a pretty hectic pace in the otherwise sedate world of men's suits. In 2013, Men's Wearhouse bought aspirational suit maker Joseph Abboud for $98 million and a year later was able to close out the hard-fought contest for rival Jos. A. Bank in a $1.8 billion merger. It also decided against selling its discount suit chain, K&G, despite its low performance and profitability.

While the two deals for the disparate Joes seem world's apart, they're part of a larger whole that could see Men's Wearhouse gain even more value for investors as it now has the entire men's suit market covered, price-wise.

Joseph Abboud brings an upscale touch of class to Men's Wearhouse. Photo: Joseph Abboud

While Jos. A. Bank was the bigger deal of the two, a natural union even if it paid through the nose to acquire its rival, Joseph Abboud could be the real growth story as it seeks to build the company into a $1 billion brand, a quadrupling of its current revenue contribution. By adding its higher price-point suits to some 600 Jos. A. bank stores, in addition to the 700 Men's Wearhouse stores it's already in (and 150 Moore's stores in Canada, according to a recent Forbes story), Men's Wearhouse has the chance to expand the awareness of the brand to a new cohort of customers.

Jos. A. Bank is in line for a makeover, of going from a promotion-heavy retailer -- or, as CEO Douglas Ewert terms it, a "buy one get three free" mentality -- to one where it can go deeper into the customer's closet so they have a reason to shop the store.

It will need to do something because the vaunted synergies of the acquisition have yet to materialize and Men's Wearhouse said investors shouldn't expect to see any change in fortunes until the back half of this year. By cutting back on the deep discounting Jos. A. Bank offered without eliminating it, the retailer is hoping to shore up the disappointing performance of the brand.

An improving economyPart of the growth thesis for Jos. A. Bank (and Joseph Abboud, for that matter) is based on the economy continuing to improve allowing men's suits buyers to scale up to a better quality suit. Buy also giving them a greater choice of offerings, Men's Wearhouse is counting on being able to maintain its current base of customers while expanding into new markets.

According to the market analysts at Euromonitor International, menswear grew 4.5% to $440 billion in global sales compared to 3.7% in womenswear at $662 billion, a disparity that will continue for the next five years. Because disposable incomes for men are expected to remain 50% above women worldwide, the researchers say men's clothing remains a "great opportunity for fashion brands looking to diversify their product portfolios and reach out to new consumers."

Competition is getting more intense with the bigger opportunity, and brands like Burberry, Coach , and Zara have set up their own stand-alone menswear stores to take advantage of it. Even department store chains are reaping the benefits, including J.C. Penney , which reported its men's department was one of its strongest performers in the fourth quarter.

A growing market, though, should give Men's Wearhouse as good a chance as any of its rivals to gain mind share with consumers. As the industry specialist, it's poised to capture a good portion of the dollars being spent in the space.

New product introductions may allow Men's Wearhouse to "go deeper into the closet" of its customers. Photo: Men's Wearhouse

Still undervaluedDespite the gains made by its stock from the low point, Men's Wearhouse still trades at just 13 times next year's earnings estimates and at a fraction of its sales. That makes it one of the cheapest stocks in the apparel industry, though as the only publicly trade menswear retailer comparisons are not exact.

Yet because the U.S. menswear market is highly fragmented, having one of the most recognizable brands ought to be a benefit and give it top mindshare among consumers.

If it's able to execute the assimilation of Jos. A. Bank into a growth brand again while introducing Joseph Abboud to a new generation of suit buyers, all the while providing new products and opportunities for customers to shop its stores, investors just might find Men's Wearhouse current valuation was a good place to start in buying its stock.

The article Is Men's Wearhouse Stock a Buy? originally appeared on Fool.com.

Follow Rich Duprey's coverage of all the retailing industry's most important news and developments. Heowns shares of J.C. Penney Company,. The Motley Fool recommends Coach. The Motley Fool owns shares of Coach. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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