Small Cap Alert: Pacific Sunwear Has More Than Doubled in 2013

Shares of Pacific Sunwear PSUN were trading up around 13 percent late on Thursday after the company released its fiscal first-quarter earnings results after the closing bell on Wednesday. The small-cap company was devastated in the wake of the financial crisis and the stock has never recovered.

In fact, about a year ago, Pacific Sunwear was trading at the same levels seen during the worst of the 2008-2009 market crash. In 2007, the company spent part of the year trading above $20, but by late 2008 the shares had fallen below $2.

In 2013, it started to show signs of a turnaround. Year-to-date, the stock has already more than doubled and shares hit a new 52-week high on Thursday. The company's struggles in recent years can be traced to a persistent decline in sales and a string of operating losses.

Investors, however, are betting on a turnaround for the Anaheim-based specialty retailer. Nevertheless, at current levels the company has a market cap of around $226 million and remains firmly entrenched in the small-cap space.

The most recent catalyst for the stock was the company's fiscal first-quarter earnings results with Pacific Sunwear reporting earnings and revenue ahead of Wall Street consensus. The company also guided for Q2 revenue that was well above current analysts' consensus and also said that it may earn a profit in the second-quarter.

In Q1, Pacific Sunwear reported a loss of $24.8 million or $0.35 per share, compared to a loss of $15.62 million or $0.23 per share, in last year's corresponding quarter.

On an adjusted basis, which is comparable to analysts' consensus, the company lost $9.4 million or $0.14 per share, versus a loss of $0.20 per share in last year's first-quarter. This easily topped Wall Street estimates which called for a per share loss of $0.19.

Total sales in the period were $169.84 million compared to $162.26 million last year. This also beat analysts' consensus calling for sales of $164.22 million.

While its first-quarter results were solid, investors are more concerned with the company's guidance, which was also very strong. For Q2, Pacific Sunwear said that it sees adjusted EPS between a loss of $0.05 and earnings of $0.02. Revenue is expected to be between $209 million and $219 million. This compares to current consensus of a loss of $0.04 per share on revenue of $198.33 million.

The guidance suggests that operating momentum is starting to pick up at the specialty retailer and analysts are likely to raise their estimates for both Q2 and the full-year in coming days. While the company has already staged a large rally in 2013, the stock could be setting up for even more gains if it can continue to deliver sales growth and work towards becoming consistently profitable.