"One of the best times to buy a stock is at 52-week lows when insiders are buying their own stock. After all, there are a thousand reasons for insiders to sell stock, but only 1 reason for insiders to buy stock. They believe the stock will increase in value.
The company recently completed a 49% acquisition of Town Shoes Limited, the largest footwear retailer in Canada. After DSW reported disappointing 1Q2014 earnings on May 28, 2014, the stock dropped roughly 27% to $23.62. The week after this drop, insiders loaded up on the stock triggering a bullish signal.
Looking at the 1Q2014 earnings report, it appears the sharp drop in the stock price may have been overdone. DSW has strong positions across the US and is a recognized and established shoe retailer. More importantly, the extreme winter weather impacted sales resulting in flat revenue growth. DSW opened 14 new stores during the 1st quarter and plans to open 35 new stores in 2014. As a result, management expects total sales growth in increase in 2014.
The company has zero long-term debt and actually lowered 2014 CapEx by $10 million. The company is fundamentally sound with EV/revenue of 1, P/E of 16.5 and operating cash flow of $271 million. To top it all off, the company pays a sustainable dividend yield of 2.7%. If insider buying activity tells you anything, the top insiders at DSW believe the company is on the right path and the worst of the bad news is behind it. DSW is a fundamentally solid company that was over sold as a result of a disappointing quarter. It's difficult to find value stocks in a market constantly hitting new highs, but DSW fits the bill as a value stock at current levels around $27-$28/share.
Goldman Sachs upgraded DSW on 6/17/14 to a buy from neutral, stating, "On attractive risk/reward following a rare dislocation following 1Q earnings, with a 3% dividend yield, $6/net cash per share and catalysts, we recommend buying ahead of the inflection". Goldman also raised their price target."
Good post. I have played here off and on over the past three years very profitably. It is arguable that it was over valued a bit post split. No question in-climate weather in the spring period can have a tough effect on early spring assortments start to sell date but as in the past when the weather breaks shoppers still have a need that needs to be filled. I look for sales in the value driven retail market place. DSW is the World Class operator in the highly brand driven shoe business. The management which is skilled and experienced buying their shares at this level along with GS upgrading the stock is a clear invitation to buy in at this pivot point. I believe we will see a share price in the mid to high 30's before year end. Even with this struggling economy. Better goods accessible at affordable prices.
When you say they have no long-term debt, you do understand that the rating agencies consider long-term lease on stores to be the equivalent of debt. still, they are not heavily leveraged even after making that typical adjustment, and the stock is relatively cheap, indeed.
I could care less about a rating agency and what they look at on a stock with no balance sheet debt. There is net value in their leases anyway. Who taught you how to evaluate equity valuation ? NO DEBT is no NO DEBT. There is no rating agency here. Are you more comfortable with bonds ? Just kidding.