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Why Party City Stock Is Jumping Today

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What happened

Shares of Party City (NYSE: PRTY) popped 15% in early trading Friday, after the party supplies retailer reported fiscal Q4 and full-year 2017 earnings that beat analyst estimates. GAAP profits for the quarter came at $1.58 per share, topping expectations by $0.01. Sales likewise exceeded analysts' estimates.

As of 11:45 a.m EST, Party City stock was up 9.5%.

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Image source: Getty Images.

So what

Party City reported $789.6 million in Q4 sales, up 4% year over year and "in line with our expectations," according to CEO James Harrison.

Sales for the year as a whole likewise rose 4%, to $2.4 billion, and gross profit margins on those sales were up 40 basis points for the year, at 40.8%. Profits soared 83% to $1.79 per diluted share, boosted by "non-recurring income tax benefits related to the Tax Cuts and Jobs Act of 2017 .

Now what

Arguably best of all, Party City reported generating $342.2 million in positive free cash flow (FCF) for the year. Even with its hefty debt load inflating Party City's $1.6 billion market capitalization to a $3.5 billion enterprise value (EV), this gives Party City stock a modest EV/FCF ratio of just 10.2 -- not at all a bad price to pay for a company that analysts think has the potential to grow earnings as much as 20% annually over the next five years.

Even though shares are now 9.5% more expensive after earnings, I can't help but think that Party City stock looks an awful lot like a buy today.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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