Foot Locker Inc (FL, Financial), a leading global retailer of athletically inspired shoes and apparel, has been under the spotlight for its recent stock performance. With a daily gain of 2.77% and a 3-month loss of 33.63%, the question arises - is Foot Locker significantly undervalued? This article aims to provide an exhaustive analysis of Foot Locker's Earnings Per Share (EPS) of 1.54 and its valuation. Read on to explore whether this is an opportune moment to invest in Foot Locker.
Company Overview
Foot Locker Inc operates thousands of retail stores throughout the United States, Canada, Europe, Australia, and New Zealand, with franchisees in the Middle East and South Korea. The company mainly sells athletically inspired shoes and apparel, with Nike being a major supplier. Foot Locker's sales amount to $8.30 billion, and it has a market cap of $1.70 billion.
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Foot Locker's stock appears to be significantly undervalued based on our valuation method. At its current price of $17.83 per share, the stock seems to offer a promising return in the long term.
Assessing Financial Strength
Before investing in a company, it's crucial to examine its financial strength. Factors such as the cash-to-debt ratio and interest coverage can provide insights into the company's financial health. Foot Locker has a cash-to-debt ratio of 0.06, which is lower than 88.06% of 1097 companies in the Retail - Cyclical industry, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability and high profit margins, is typically safer. Foot Locker has been profitable for 10 of the past 10 years, with an operating margin of 5.22%, which ranks better than 60.22% of 1111 companies in the Retail - Cyclical industry. This indicates strong profitability.
However, growth is a crucial factor in a company's valuation. Foot Locker's 3-year average annual revenue growth rate is 7.7%, which ranks better than 63.89% of 1044 companies in the Retail - Cyclical industry. However, its 3-year average EBITDA growth rate is -0.3%, which ranks worse than 68.13% of 891 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. Foot Locker's ROIC of 4.09 is higher than its WACC of 3.71, implying value creation for shareholders.
Conclusion
Overall, Foot Locker (FL, Financial) stock appears to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 68.13% of 891 companies in the Retail - Cyclical industry. To learn more about Foot Locker stock, check out its 30-Year Financials here.
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