Long-established in the Manufacturing - Apparel & Accessories industry, VF Corp (VFC, Financial) has enjoyed a stellar reputation. It has recently witnessed a surge of 3.54%, juxtaposed with a three-month change of 22.08%. However, fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of VF Corp.
Decoding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- 1. Financial strength rank: 5/10
- 2. Profitability rank: 6/10
- 3. Growth rank: 0/10
- 4. GF Value rank: 4/10
- 5. Momentum rank: 4/10
Based on the above method, GuruFocus assigned VF Corp the GF Score of 61 out of 100, which signals poor future outperformance potential.
Understanding VF Corp's Business
VF Corp, with a market cap of $7.96 billion, designs, produces, and distributes branded apparel, footwear, and accessories. 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, which traces its roots to 1899, has grown through multiple acquisitions.
Financial Strength Breakdown
VF Corp's financial strength indicators present some concerning insights about the company's balance sheet health. The company's Altman Z-Score is just 1.41, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.1 indicates a struggle in handling existing debt levels.
The company's debt-to-equity ratio is 2.9, which is worse than 95% of 900 companies in the Manufacturing - Apparel & Accessories industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations. Additionally, the company's debt-to-Ebitda ratio is 15.63, which is above Joel Tillinghast's warning level of 4 and is worse than 92.37% of 760 companies in the Manufacturing - Apparel & Accessories industry. Tillinghast said in his book “Big Money Think's Small: Biases, Blind Spots, and Smarter Investing” that a high debt-to-Ebitda ratio can be a red flag unless tangible assets cover the debt.
Growth Prospects
A lack of significant growth is another area where VF Corp seems to falter, as evidenced by the company's low Growth rank. Lastly, VF Corp predictability rank is just one star out of five, adding to investor uncertainty regarding revenue and earnings consistency.
Conclusion
Given the company's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights the firm's unparalleled position for potential underperformance. While VF Corp has a rich history and a diverse portfolio of brands, its financial health and growth prospects raise concerns about its ability to outperform in the future. Investors should consider these factors when making investment decisions.
GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen
