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Should You Investigate Designer Brands Inc. (NYSE:DBI) At US$15.44?

Simply Wall St

Designer Brands Inc. (NYSE:DBI), which is in the specialty retail business, and is based in United States, received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$18.72 at one point, and dropping to the lows of US$14.23. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Designer Brands's current trading price of US$15.44 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Designer Brands’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Designer Brands

What's the opportunity in Designer Brands?

The stock seems fairly valued at the moment according to my relative valuation model. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Designer Brands’s ratio of 20.7x is trading slightly above its industry peers’ ratio of 16.73x, which means if you buy Designer Brands today, you’d be paying a relatively reasonable price for it. And if you believe that Designer Brands should be trading at this level in the long run, there’s only an insignificant downside when the price falls to its real value. So, is there another chance to buy low in the future? Given that Designer Brands’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Designer Brands?

NYSE:DBI Past and Future Earnings, January 28th 2020

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Designer Brands’s earnings over the next few years are expected to double, indicating a very optimistic future ahead. This should lead to stronger cash flows, feeding into a higher share value.

What this means for you:

Are you a shareholder? It seems like the market has already priced in DBI’s positive outlook, with shares trading around its fair value. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at DBI? Will you have enough conviction to buy should the price fluctuate below the true value?

Are you a potential investor? If you’ve been keeping an eye on DBI, now may not be the most advantageous time to buy, given it is trading around its fair value. However, the optimistic forecast is encouraging for DBI, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Price is just the tip of the iceberg. Dig deeper into what truly matters – the fundamentals – before you make a decision on Designer Brands. You can find everything you need to know about Designer Brands in the latest infographic research report. If you are no longer interested in Designer Brands, you can use our free platform to see my list of over 50 other stocks with a high growth potential.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.