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Charlie Sheen Effect: Next Target Hot Topic Sales

Hot Topic shares jumped Friday after an analyst upgraded the stock on an expected boost from sales of Charlie Sheen T-shirts and other pop culture apparel.

Charlie Sheen
Riccardo S. Savi | Getty Images
Charlie Sheen

The Sheen shirts, featuring slogans popularized by the unemployed Twitter sensation like “Winning,” “I Got Tiger Blood,” and “You’re Either in Sheen’s Korner or You’re With the Trolls” are emblematic of the store’s transition from a gloomy ‘goth’ store to a brighter, more mass retailer tapped into the TV and Internet zeitgeist.

“With turnaround stories, we often look for a company to return to what it was doing when it was at the height of its success,” said Adrienne Tennant of Janney Capital Markets, who upgraded the shares to ‘buy’ from ‘neutral.’ “Hot Topic is the chain that succeeded with ‘South Park,’ ‘Care Bears,’ ‘Superman,’ and ‘SpongeBob SquarePants.’ After a period of becoming too associated with punk and goth, (HOTT) has recently returned to a foundation of pop culture, which we believe attracts a wider target audience with a less intimidating merchandise offering.”

Hot Topic shares are down more than 80 percent from their 2004 all-time high and have traded between $4 and $6 a share for pretty much the last three years. Tennant is betting this stock has finally hit rock bottom, especially considering it trades at a very low enterprise value-to-sales ratio of 0.3x. That’s based on a sales estimate of $667 million this year.

The analyst has some tiger blood of her own to be making a buy call on this stock. Just one other analyst out of the nine that cover it say the shares are worth owning.

However, last year activists Becker Drapkin and Carlson Capital started buying the stock and got two members appointed to the board of directors. The money managers are trying to advise management on ways “such undervaluation can be rectified,” according to a filing.

So the Charlie Sheen halo effect continues. From a jolt to Twitter’s popularity to his sold-out “My Violent Torpedo of Truth/Defeat is Not an Option” tour to a small retailer in need of some winning.

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