With a notable daily gain of 20.89% and a remarkable 3-month gain of 109.17%, Abercrombie & Fitch Co (ANF, Financial) has caught the attention of many investors. Its Earnings Per Share (EPS) stands at 0.7, painting an interesting financial picture. However, the question that begs to be answered is: Is the stock significantly overvalued? This article presents an in-depth valuation analysis of Abercrombie & Fitch Co (ANF) to address this question. Read on for valuable insights.
Introduction to Abercrombie & Fitch Co
Abercrombie & Fitch Co is a specialty retailer known for its casual clothing, personal-care products, and accessories for men, women, and children. The company primarily sells directly to consumers through its stores and websites, which include the Abercrombie & Fitch, Abercrombie kids, and Hollister brands. While most of its stores are located in the United States, it also operates numerous stores in Canada, Europe, and Asia. Its merchandise is sourced from dozens of vendors, primarily located in Asia and Central America.
At present, the Abercrombie & Fitch Co stock is trading at $49.77 per share, while its GF Value, an estimation of fair value, stands at $31.3. This discrepancy prompts a deeper exploration of the company's intrinsic value.
Understanding the GF Value of Abercrombie & Fitch Co
The GF Value represents the current intrinsic value of a stock derived from our exclusive method. It is calculated based on historical multiples, GuruFocus adjustment factor, and future estimates of business performance.
For Abercrombie & Fitch Co, the GF Value suggests that the stock appears to be significantly overvalued. The stock is currently trading at $49.77 per share with a market cap of $2.50 billion, considerably above the GF Value Line. This implies that the stock's future return is likely to be poor. However, if the stock were to fall significantly below the GF Value Line, its future return would likely be higher.
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Examining the Financial Strength of Abercrombie & Fitch Co
Investing in companies with poor financial strength carries a higher risk of permanent capital loss. Thus, it's crucial to review a company's financial strength before deciding to buy its stock. A good starting point is looking at the cash-to-debt ratio and interest coverage. Abercrombie & Fitch Co's cash-to-debt ratio stands at 0.38, which is worse than 55.48% of 1085 companies in the Retail - Cyclical industry. The overall financial strength of Abercrombie & Fitch Co is ranked 6 out of 10, indicating fair financial health.
Profitability and Growth of Abercrombie & Fitch Co
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Abercrombie & Fitch Co has been profitable 9 out of the past 10 years. Over the past twelve months, the company recorded a revenue of $3.70 billion and Earnings Per Share (EPS) of $0.7. Its operating margin is 4.07%, ranking better than 52.7% of 1093 companies in the Retail - Cyclical industry. Overall, Abercrombie & Fitch Co's profitability is ranked 7 out of 10, indicating fair profitability.
When it comes to growth, Abercrombie & Fitch Co's 3-year average annual revenue growth is 8.7%, ranking better than 65.68% of 1043 companies in the Retail - Cyclical industry. However, its 3-year average EBITDA growth rate of 5.8% ranks worse than 55.94% of 901 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 assess its profitability. Over the past 12 months, Abercrombie & Fitch Co's ROIC stands at 3.42, while its WACC is 8.22, indicating a need for improvement.
Conclusion
In conclusion, Abercrombie & Fitch Co (ANF, Financial) appears to be significantly overvalued. While the company's financial condition and profitability are fair, its growth ranks worse than 55.94% of 901 companies in the Retail - Cyclical industry. For more detailed financial information about Abercrombie & Fitch Co, you can check out its 30-Year Financials here.
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