Discover the Secret Behind Boot Barn’s Unstoppable Rise to Popularity!

Shares of western-style clothing retailer Boot Barn (NYSE: BOOT) are up nearly 200% over the past five years. The company has more room to trade and with its shares recently trading at a price/earnings (P/E) ratio of less than 13, its valuation is attractive.

The stock recently fell 11% after the company reported lower-than-expected revenue for its fiscal fourth quarter (which ended April 1) and toned down growth projections. But revenue was still up 11% from the year-ago period.

Boot Barn’s growing popularity is not a recent fad, but a long-term trend. Same-store sales have increased in most of the last 11 years. Boot Barn’s portfolio of upscale brands, meanwhile, accounted for about 34% of the company’s sales in fiscal 2023, up from just 3% in fiscal 2012. Upscale brands can keep customers coming back to shops as they cannot find these items elsewhere. More importantly, Boot Barn’s brands have a much higher gross profit margin than the third-party brands it also sells.

Profits can continue to grow for Boot Barn if sales of upmarket brands continue to increase. And management has ambitious plans, with plans to open more than 500 locations over the next decade, which would double the size of the company. (The Motley Fool recommended Boot Barn.)

Ask the Fool

From WW, Columbus, Ohio:. Every few years we hear about the debt ceiling. Why is it so bad if it is not lifted?

The Fool replies: The debt ceiling is a limit, imposed by Congress, on how much outstanding debt our nation can have.

The US government receives revenue from taxes and other sources (but mostly taxes); then use this money to pay bills and fund the country’s operations, paying for things like the military, health care, social security, transportation, job training, scientific research, infrastructure maintenance, and much more. When there is a deficit, the government can borrow money, for example by issuing bonds, bills and notes.

If the limit is not raised, the United States may default on some of its financial obligations. Many experts believe that a default would be a global catastrophe, damaging America’s economy and reputation, and could lead to a recession.

From VH, Huntsville, Alabama: How should I invest the money I’m saving for a down payment on a house?

The Fool replies: It depends on when you plan to buy your home. Over long periods, it’s hard to beat the stock market to increase the value of your portfolio. However, the stock market can be volatile, so it’s best not to invest in it with dollars you expect to need within, say, five years or even 10 years, to be more conservative. You don’t want to have to withdraw your down payment immediately after the stock market temporarily dips.

If your anticipated home purchase is in the next few years, invest the down payment in safer places, such as certificates of deposit (CDs), money market accounts, or short-term bonds. You can find great interest rates on our sister site, The Ascent. com.

The school of fools

You’ve probably heard the adage “buy low, sell high.” Some people aim to make money by reversing that order: selling high and then buying low. It’s called “short selling” (or simply “short selling”) and it’s perfectly legal. Many people have profited from short selling, but the counter arguments are compelling.

Here’s how shorting works: If you’re “bearish” on a company and expect its shares to fall, you borrow shares through your brokerage and then sell them. At some point, however, you’ll need to buy them back to replace the shares you borrowed. If the stock falls, as you expected, you can buy it back at a lower price. Presto: You’ve sold high and bought low.

But over the long run, the stock market and many stocks within it tend to rise in value. Even if you find the most hopeless looking company, with huge debts and declining sales, it could still get back on track and stay in business much longer than expected. The company’s employees will likely work hard to succeed, against the expectations of bearish investors.

Here’s another consideration: If you “long” a stock, buying it in the usual way with the expectation that it will increase in value over time, you could lose 100% of your invested dollars in the worst-case scenario. However, your edge is virtually unlimited: the stock could double, triple, quadruple, or even increase in value 25x.

Conversely, with shorting, your upside potential is only 100% if the stock falls to zero. If it goes up and continues to go up, your downside is unlimited until you “cover” your position, by buying back shares to replace what you borrowed.

Finally, understand that you will typically be charged loan fees, often large, on the value of the shares you borrow. And if the stock you shorted pays dividends, you’ll need to pay them to the brokerage so they can go to the account from which the stock was borrowed.

You can invest very well without ever shorting a stock.

My dumbest investment

From DM, online: I shouldn’t call this my most misguided investment, as it worked out well, but the reasoning behind the investment was certainly silly. Years ago I went to a science fiction convention with my niece. As we walked through it, she noticed an eBay booth. She explained that she bought toy horses on the site and also sold some of his old toys there. Based on her enthusiasm, I bought three shares.

Luckily for me, the stock took off. It split, turning my three shares into six, and I sold three, recouping my initial investment. I let the other stocks go and they did quite well, especially after eBay bought PayPal (which later spun off).

The Fool replies: Your process wasn’t completely stupid. It can make sense to scout promising investments by noticing products and services that many people seem to use and love. But it’s smart to follow up on that inspiration with some research about the company: Is it sound (abundant money, relatively low debt)? Is growing? And does it have sustainable competitive advantages, such as eBay’s sizable marketplace, which attracts buyers and sellers alike?

Furthermore, it would have been important to ensure that the shares were not overvalued; ideally, you want to buy stocks for less than their value.

Who I am?

I trace my roots back to 1985 when I first came to life as Monterey Homes. In the early 1990s, I was twice named one of the fastest growing private companies in the United States. I went public in 1997; I also joined Legacy Homes that year, then adopted my current name. Today, headquartered in Scottsdale, Arizona, and with a recent market value near $4.3 billion, they are the fifth-largest publicly traded homebuilder in America (based on homes closed in 2022). I specialize in energy-efficient entry-level homes and “first move-ups”. I operate in nine states and have sold more than 165,000 homes. Who I am?

Don’t remember the trivia question from last week? find him Here.

The answer to last week’s trivia: Paper clips