Foot Locker Inc (FL, Financial) experienced a daily loss of 33.51% and a 3-month loss of 14.72%. Despite these losses, the company reported an Earnings Per Share (EPS) of 2.58. This article will delve into whether Foot Locker's stock is significantly undervalued and provide a comprehensive valuation analysis.
Company Overview
Foot Locker Inc operates thousands of retail stores worldwide, primarily in the United States, Canada, Europe, Australia, and New Zealand. The company primarily sells athletically inspired shoes and apparel, with Nike being its major supplier. It operates under various store names, including Foot Locker, Champs, and Runners Point, and also has a robust e-commerce business. As of August 23, 2023, Foot Locker's stock price stands at $15.43, significantly lower than its fair value (GF Value) of $43.09.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.
With a current price of $15.43 per share and a market cap of $1.40 billion, Foot Locker's stock appears to be significantly undervalued. Consequently, the long-term return of its stock is likely to be much higher than its business growth.
Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. Therefore, it is crucial to review a company's financial strength before deciding to purchase shares. The cash-to-debt ratio and interest coverage of a company are good indicators of its financial strength. Foot Locker has a cash-to-debt ratio of 0.1, ranking worse than 81.01% of 1085 companies in the Retail - Cyclical industry. Overall, Foot Locker's financial strength is fair, with a score of 6 out of 10.
Profitability and Growth
Companies that have consistently been profitable over the long term offer less risk to investors. Foot Locker has been profitable 10 years over the past decade. The company had a revenue of $8.50 billion and an Earnings Per Share (EPS) of $2.58 in the past twelve months. Its operating margin is 6.69%, ranking better than 65.97% of 1093 companies in the Retail - Cyclical industry. Overall, the profitability of Foot Locker is strong, with a rank of 9 out of 10.
Growth is one of the most important factors in the valuation of a company. Foot Locker's 3-year average revenue growth rate is better than 63.37% of 1043 companies in the Retail - Cyclical industry. However, Foot Locker's 3-year average EBITDA growth rate is -0.3%, ranking worse than 68.26% of 901 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 also evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. Over the past 12 months, Foot Locker's ROIC was 5.61, while its WACC was 4.07.
Conclusion
In conclusion, Foot Locker's stock appears to be significantly undervalued. The company's financial condition is fair, and its profitability is strong. However, its growth ranks worse than 68.26% of 901 companies in the Retail - Cyclical industry. For more information about Foot Locker's stock, you can check out its 30-Year Financials here.
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