Value-focused investors are always on the hunt for stocks that are priced below their intrinsic value. One such stock that merits attention is VF Corp (VFC, Financial). The stock, which is currently priced at 20.64, recorded a gain of 3.3% in a day and a 3-month decrease of 1.83%. The stock's fair valuation is $64.43, as indicated by its Fair Value (GF Value).
Understanding the GF Value
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on three factors: historical multiples (PE Ratio, PS Ratio, PB Ratio and Price-to-Free-Cash-Flow) that the stock has traded at, GuruFocus adjustment factor based on the company's past returns and growth, and future estimates of the business performance.
Warning Signs: Piotroski F-Score and Altman Z-Score
However, investors need to consider a more in-depth analysis before making an investment decision. Despite its seemingly attractive valuation, certain risk factors associated with VF should not be ignored. These risks are primarily reflected through its low Piotroski F-score of 2, and Altman Z-score of 1.4. These indicators suggest that VF, despite its apparent undervaluation, might be a potential value trap. This complexity underlines the importance of thorough due diligence in investment decision-making.
Company Overview: VF Corp (VFC, Financial)
VF designs, produces, and distributes branded apparel, footwear, and accessories. Its apparel categories are active, outdoor, and work. Its portfolio of about a dozen brands includes Vans, The North Face, Timberland, Supreme, and Dickies. VF 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. The company has grown through multiple acquisitions and traces its roots to 1899.
Analysis of VF's' Profitability
Let's delve deeper into VF's financial health by examining the decline in its return on assets (ROA) over the past three years. The data indicates 2020: 3.07; 2021: 7.66; 2022: 7.45; 2023: 0.84, when expressed in percentages. Such a decrease is concerning, as the Piotroski F-Score penalizes companies with lower current ROA compared to the previous period. This ongoing decline highlights another potential risk associated with investing in VF.
Leverage, Liquidity and Source of Funds: A Worrying Trend
Assessing the aspect of leverage, liquidity, and sources of funds, VF demonstrates an alarming rise in its debt-to-total assets ratio over the past three years. The provided data shows 2020: 0.54; 2021: 0.51; 2022: 0.48; 2023: 0.56, expressed as percentages. A higher debt ratio suggests that VF is increasingly financing its assets through debt, thereby escalating its financial risk. The Piotroski F-Score views this as a negative indicator, further cautioning investors about VF.
Operating Efficiency: A Darker Picture
Lastly, concerning operating efficiency, the Piotroski F-score examines changes in gross margin and asset turnover. Regrettably, VF follows a discouraging trajectory with a decrease in gross margin percentage over the past three years, as demonstrated by the data provided: 2020: 54.79; 2021: 53.47; 2022: 54.04; 2023: 52.28 (expressed in percentages). This contraction in gross margin suggests that VF is grappling with either an escalation in the cost of goods sold or dwindling prices - both of which are inauspicious indicators for profitability.
Conclusion: VF Corp (VFC, Financial) as a Potential Value Trap
Despite VF's seemingly attractive valuation, the company's low Piotroski F-Score and Altman Z-Score, along with the concerning trends in its profitability, leverage, liquidity, and operational efficiency, suggest potential financial distress. Thus, VF Corp (VFC) might be a potential value trap, and investors should exercise caution and conduct thorough due diligence before making an investment decision.
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GuruFocus Premium members can find stocks with high Altman Z-Score using the following Screener: Walter Schloss Screen .
