G-III Apparel Group Stock Shows Every Sign Of Being Significantly Overvalued
- By GF Value
The stock of G-III Apparel Group (NAS:GIII, 30-year Financials) gives every indication of being significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $34.94 per share and the market cap of $1.7 billion, G-III Apparel Group stock gives every indication of being significantly overvalued. GF Value for G-III Apparel Group is shown in the chart below.
Because G-III Apparel Group is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. G-III Apparel Group has a cash-to-debt ratio of 0.49, which ranks in the middle range of the companies in the industry of Retail - Cyclical. Based on this, GuruFocus ranks G-III Apparel Group's financial strength as 5 out of 10, suggesting fair balance sheet. This is the debt and cash of G-III Apparel Group over the past years:
It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. G-III Apparel Group has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $2.1 billion and earnings of $0.46 a share. Its operating margin is 4.75%, which ranks in the middle range of the companies in the industry of Retail - Cyclical. Overall, GuruFocus ranks the profitability of G-III Apparel Group at 7 out of 10, which indicates fair profitability. This is the revenue and net income of G-III Apparel Group over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of G-III Apparel Group is -9.3%, which ranks worse than 73% of the companies in the industry of Retail - Cyclical. The 3-year average EBITDA growth is -12.6%, which ranks worse than 76% of the companies in the industry of Retail - Cyclical.
One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, G-III Apparel Group's ROIC is 3.32 while its WACC came in at 16.19.
Overall, G-III Apparel Group (NAS:GIII, 30-year Financials) stock is estimated to be significantly overvalued. The company's financial condition is fair and its profitability is fair. Its growth ranks worse than 76% of the companies in the industry of Retail - Cyclical. To learn more about G-III Apparel Group stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
