The stock of Ralph Lauren Corp (RL, Financial) witnessed a -2.73% change in its daily value, and an impressive 15.49% gain over the last 3 months. With an Earnings Per Share (EPS) (EPS) of 7.59, the question arises: is Ralph Lauren's stock fairly valued? In this article, we delve into a valuation analysis of Ralph Lauren, providing insights into its financial health, profitability, and growth prospects. We urge readers to explore the following analysis for a more informed investment decision.
Company Overview
Ralph Lauren Corp, founded by designer Ralph Lauren in 1967, is a leading lifestyle product company with operations in North America, Europe, and Asia. The company's product portfolio includes apparel, footwear, eyewear, jewelry, handbags, home goods, and fragrances. Its brands include Ralph Lauren Collection, Polo Ralph Lauren, Lauren Ralph Lauren, and Double RL. Ralph Lauren distributes its products through wholesale, retail, and licensing channels. As of August 10, 2023, Ralph Lauren's stock price stands at $124.98, with a market cap of $8.20 billion, closely aligning with its GF Value of $126.04.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated using historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line provides a fair trading value for the stock. If the stock price significantly deviates from the GF Value Line, it could imply overvaluation or undervaluation, affecting future returns.
For Ralph Lauren (RL, Financial), the GF Value suggests that the stock is fairly valued. The stock's current price of $124.98 per share aligns with its intrinsic value, as determined by historical multiples, past growth, and future performance estimates. As such, the long-term return of Ralph Lauren's stock is likely to be close to the rate of its business growth.
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Financial Strength
Analysing a company's financial strength is crucial before investing. Companies with poor financial strength pose a higher risk of permanent loss. Ralph Lauren's cash-to-debt ratio of 0.54 ranks better than 52.45% of companies in the Manufacturing - Apparel & Accessories industry. Its overall financial strength is 6 out of 10, indicating fair financial health.
Profitability and Growth
Consistent profitability over the long term reduces investment risk. Ralph Lauren has been profitable 8 out of the past 10 years. With a revenue of $6.40 billion and an EPS of $7.59 in the past twelve months, its operating margin of 11.75% ranks better than 81.85% of companies in its industry. Its profitability rank is 7 out of 10, indicating fair profitability.
Growth is a critical factor in a company's valuation. The 3-year average annual revenue growth rate of Ralph Lauren is 5.4%, ranking better than 58.91% of companies in its industry. Its 3-year average EBITDA growth rate is 20.2%, outperforming 68.29% of its industry peers.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) and Weighted Average Cost of Capital (WACC) is another way to assess profitability. For the past 12 months, Ralph Lauren's ROIC is 14.34, and its WACC is 8.95, indicating healthy profitability.
Conclusion
In conclusion, Ralph Lauren's stock appears to be fairly valued. The company exhibits fair financial strength and profitability, with growth prospects ranking better than 68.29% of companies in the Manufacturing - Apparel & Accessories industry. For a deeper understanding of Ralph Lauren's financials, you can check out its 30-Year Financials here.
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