On October 02, 2023, Abercrombie & Fitch Co (ANF, Financial) recorded a daily gain of 2.59%, bringing its 3-month gain to 52.81%. The company's Earnings Per Share (EPS) (EPS) stands at 2.13. With these impressive figures, one might wonder if the stock is significantly overvalued. This article presents an in-depth valuation analysis of Abercrombie & Fitch Co (ANF). Let's explore.
Company Overview
Abercrombie & Fitch Co is a specialty retailer selling casual clothing, personal-care products, and accessories for men, women, and children. The company operates through its stores and websites, including the Abercrombie & Fitch, Abercrombie kids, and Hollister brands. Although most stores are in the United States, the company also has a significant presence in Canada, Europe, and Asia. All stores are leased. Abercrombie & Fitch Co sources its merchandise from vendors primarily in Asia and Central America and ships to over 100 countries via its websites.
At its current price of $57.83 per share and a market cap of $2.90 billion, Abercrombie & Fitch Co's stock appears significantly overvalued compared to its GF Value of $37.16. But to get a complete picture, let's delve deeper into the company's financials and performance.
Understanding GF Value
The GF Value is a unique measure that estimates a stock's intrinsic value based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line represents the fair value at which the stock should ideally be traded.
According to the GF Value, Abercrombie & Fitch Co appears significantly overvalued. This conclusion is based on the stock's historical multiples, past business growth, and analyst estimates of future business performance. If the stock price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
Given that Abercrombie & Fitch Co is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Abercrombie & Fitch Co has a cash-to-debt ratio of 0.52, ranking better than 51.41% of 1097 companies in the Retail - Cyclical industry. The overall financial strength of Abercrombie & Fitch Co is 7 out of 10, indicating fair financial strength.
Profitability and Growth
Consistent profitability over the long term reduces the risk for investors. Higher profit margins usually indicate a better investment compared to a company with lower profit margins. Abercrombie & Fitch Co has been profitable 9 over the past 10 years, with a revenue of $3.90 billion and an EPS of $2.13 in the past twelve months. Its operating margin is 6.27%, ranking better than 64.36% of 1111 companies in the Retail - Cyclical industry. The company's profitability is ranked 7 out of 10, indicating fair profitability.
Growth is an important factor in a company's valuation. Research by GuruFocus has found that growth is closely correlated with the long-term stock performance of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. Abercrombie & Fitch Co's 3-year average annual revenue growth is 8.7%, which ranks better than 66.09% of 1044 companies in the Retail - Cyclical industry. However, its 3-year average EBITDA growth rate is 5.8%, ranking worse than 55.44% of 891 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted average cost of capital (WACC) is another way to evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business, while WACC is the rate a company is expected to pay on average to all its security holders to finance its assets. Ideally, the ROIC should be higher than the WACC. For the past 12 months, Abercrombie & Fitch Co's ROIC stands at 7.88, while its cost of capital is 8.19.
Conclusion
Overall, Abercrombie & Fitch Co (ANF, Financial) stock shows every sign of being significantly overvalued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 55.44% of 891 companies in the Retail - Cyclical industry. To learn more about Abercrombie & Fitch Co stock, you can check out its 30-Year Financials here.
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