On July 26, 2023, VF Corp (VFC, Financial) stock experienced a daily gain of 3.47%, with an Earnings Per Share (EPS) of $0.31. However, the question remains: Is this stock a possible value trap? This article aims to provide a comprehensive analysis of VF Corp's valuation to answer this question. Read on to discover more about the company's financials, operations, and future prospects.
A Snapshot of VF Corp (VFC, Financial)
VF Corp (VFC) designs, produces, and distributes branded apparel, footwear, and accessories, including popular brands like Vans, The North Face, Timberland, Supreme, and Dickies. The company markets its products in the Americas, Europe, and Asia-Pacific through wholesale sales to retailers, e-commerce, and branded stores owned by the company and partners. VF Corp's history traces back to 1899, and it has grown through multiple acquisitions.
At a current price of $19.55 per share and a market cap of $7.6 billion, VF Corp's stock appears to be a possible value trap, according to the GuruFocus Value calculation and a deeper look at the company's financial position. The company's sales stand at $11.6 billion, with an operating margin of 9.15%.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line denotes the stock's ideal fair trading value.
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. In the case of VF Corp, the stock appears to be a potential value trap, warranting careful consideration.
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Financial Strength and Profitability
VF Corp's financial strength is a crucial factor for investors. The company has a cash-to-debt ratio of 0.1, which ranks worse than 77.42% of companies in the Manufacturing - Apparel & Accessories industry. This indicates that the financial strength of VF Corp is poor.
On the profitability front, VF Corp has been profitable 9 out of the past 10 years. The company's operating margin of 9.15% ranks better than 74.33% of companies in its industry. However, its 3-year average EBITDA growth rate is -23.1%, which ranks worse than 89.5% of companies in the same industry. This suggests that VF Corp's growth is lagging behind its peers.
Return on Invested Capital vs. Weighted Average Cost of Capital
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) is another way to evaluate its profitability. Over the past 12 months, VF Corp's ROIC was 27.37, while its WACC came in at 7.6. This indicates that the company is creating value for shareholders.
Is VF Corp a Value Trap?
Despite the seemingly undervalued status of VF Corp, certain indicators suggest that it might be a value trap. The company's Altman Z-score stands at 1.42, which places it in the distress zone and signals an increased bankruptcy risk. An Altman Z-score above 2.99 usually reflects a safer financial position. To understand the Z-score's role in assessing a company's financial risk, please click here.
Conclusion
Overall, VF Corp (VFC, Financial) stock is believed to be a possible value trap. The company's financial condition is poor, its profitability is fair, and its growth ranks worse than 89.5% of companies in the Manufacturing - Apparel & Accessories industry. To learn more about VF Corp stock, you can check out its 30-Year Financials here.
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