Dover Saddlery

Saddle up, partner! Dover Saddlery, Inc. ( DOVR ) is a great turn around story as highly discretionary retailers are really starting to heat up.

Shares carry a Zacks #1 Rank (Strong Buy), are priced right and have analysts very bullish.

Company Description

Dover Saddlery markets equestrian products in the U.S. for both English and western-style riding. The company offers everything from first-aid kits for the horse to apparel for the rider.

Cleared the Hurdle

On Mar 29 Dover Saddlery easily jumped over fourth-quarter earnings expectations thanks to a 6.1% increase in revenues, to $23.5 million. Its retail locations saw 11% year over year increases.

Net income for the period rose almost 19%, to $1.0 million, or $0.19 per share. The Zacks Consensus Estimate was calling for $0.12, giving Dover Saddlery its seventh earnings surprise in the past 8 quarters.

Comments from the CEO were encouraging as well. "We have improved margins and generated cash, and we are now well-positioned to accelerate our retail store rollout, expand market share and enhance shareholder value."

Bullish Analysts

While the quarterly projections for the next 2 periods are mixed, analysts clearly expect earnings to improve in the long run. The average estimate jumped a nickel, to $0.33, for 2011 on the earnings surprise.

Next year's forecasts are up 12 cents on average, to $0.39. Now, the company earned $0.38 in 2010 meaning that there is an expected contraction this year. But, given the upward momentum of the expectations, this is a great turnaround story. As long as estimates keep moving higher, you can expect the same from the share price.

Highly Discretionary

Seeing as many people are still getting back on their feet after the worst economic environment continues to recover, highly discretionary spending is just now starting to recover.

Last week we saw the ninth consecutive month of increasing consumer spending, but big ticket items and long-term obligations, which horses would easily qualify as, are the last to rebound. So, if you missed out on the retail bounce back, look for late-stage movers like Dover Saddlery.

Valuations Look Good

Horse racing may be the sport of kings, but even a pauper can get in on shares of DOVR. The forward P/E is sitting at just 16 times the 2011 estimate. Factor in the 23% long-term growth rate and you get a 0.7 PEG ratio.

Since Dover Saddlery's market cap is just under $28 million, the price to sales is a very useful valuation as well. It is tough to find relevant comparisons, but a P/S of 0.35 is attractive by any standard.

The Chart

Shares of DOVR have been surging, so you will have to keep those valuations and upward estimates fresh in your mind if you are usually not one to dive into a stock with a chart like this. But nonetheless, the long-term outlook should be worth the risk.

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