Foot Locker Inc (FL, Financial) has experienced a notable daily gain of 16.07%, and an impressive three-month gain of 53.97%. With an Earnings Per Share (EPS) of 1.54, investors are keen to understand if the stock is significantly undervalued. This article delves into a detailed valuation analysis to explore Foot Locker's true market value, encouraging readers to engage with the analysis that follows.
Company Introduction
Foot Locker Inc operates a vast network of retail stores across the globe, with a strong presence in the United States, Canada, Europe, Australia, and New Zealand. It also extends its reach through franchisees in the Middle East and South Korea. Specializing in athletic shoes and apparel, Foot Locker's product range is largely supplied by a handful of vendors, with Nike being a primary source. The company's retail portfolio includes well-known store names such as Foot Locker, Champs, and Runners Point, complemented by an e-commerce platform that includes Footlocker.com, Eastbay, and Final-Score. In comparing Foot Locker's current stock price of $27.67 to the GF Value of $41.78, we initiate a comprehensive examination of the company's intrinsic value.
Understanding GF Value
The GF Value is a proprietary measure that estimates the intrinsic value of a stock based on historical trading multiples, a GuruFocus adjustment factor, and future business performance projections. This value acts as a benchmark for what the stock's fair trading value should be. When the stock price is significantly above the GF Value Line, it may be overvalued, suggesting a potential decrease in future returns. Conversely, if it is below this line, the stock might be undervalued, indicating a possibility for higher future returns.
According to GuruFocus' valuation methods, Foot Locker (FL, Financial) appears to be significantly undervalued. Our analysis indicates that the stock's fair value is influenced by historical multiples, internal adjustments based on past business growth, and analyst estimates of future business performance. With a current price of $27.67 per share, Foot Locker's stock shows potential for a higher long-term return than its business growth might suggest.
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Financial Strength Assessment
Before investing, assessing a company's financial strength is crucial. Companies with weak financials pose a higher risk of permanent loss. Key indicators such as the cash-to-debt ratio and interest coverage can provide insights into a company's financial robustness. Foot Locker's cash-to-debt ratio stands at 0.06, ranking lower than 87.92% of its peers in the Retail - Cyclical industry. With a financial strength rating of 6 out of 10, Foot Locker's financial condition is deemed fair.
Profitability and Growth Prospects
Investing in profitable companies with a history of consistent profitability is generally less risky. Companies with high profit margins are more likely to perform well compared to those with lower margins. Foot Locker has maintained profitability over the past decade, with revenues of $8.30 billion and an Earnings Per Share (EPS) of $1.54 in the last 12 months. Its operating margin of 5.22% fares better than 59.48% of companies in the Retail - Cyclical industry, leading GuruFocus to rank Foot Locker's profitability as strong.
The growth of a company is a pivotal factor in its valuation. Foot Locker's 3-year average revenue growth rate surpasses 62.92% of its industry peers. However, its 3-year average EBITDA growth rate of -0.3% is lower than 68.23% of the companies in the Retail - Cyclical industry.
ROIC vs WACC Analysis
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) is another method to gauge profitability. ROIC indicates how effectively a company generates cash flow relative to its invested capital, while WACC represents the average expected rate a company pays to its security holders. When ROIC exceeds WACC, it suggests value creation for shareholders. Foot Locker's ROIC is currently 4.09, slightly below its WACC of 4.44.
Conclusion
In summary, Foot Locker (FL, Financial) is estimated to be significantly undervalued. The company's financial status is fair, and its profitability is strong, despite its growth ranking lower than a majority of its industry counterparts. For a more in-depth look at Foot Locker's financials, you can view its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
