Buckle Inc (NYSE:BKE) recorded a -4.5% daily loss and a -9.11% loss over the past three months. Despite this, the company reported a healthy Earnings Per Share (EPS) (EPS) of 4.78. This raises the question: Is Buckle (NYSE:BKE) modestly undervalued? To answer this, we delve into a comprehensive valuation analysis of Buckle. Let's explore the company's financial health, growth prospects, and intrinsic value.
Buckle Inc operates as a retailer of casual apparel, footwear, and accessories. The company caters to fashion-conscious young men and women, offering a wide selection of mostly brand-name casual apparel. Buckle markets its products under the brand names 'Buckle' and 'The Buckle'. With a current stock price of $31.31, Buckle has a market cap of $1.60 billion. The company's GF Value, an estimate of fair value, is $39.45, suggesting that the stock might be modestly undervalued.
Understanding GF Value
The GF Value is a proprietary measure that estimates a stock's intrinsic value. It factors in historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If a stock price is significantly above the GF Value Line, it's overvalued, and its future return is likely to be poor. Conversely, if it's significantly below the GF Value Line, its future return will likely be higher.
Considering these factors, Buckle (NYSE:BKE) appears to be modestly undervalued. This suggests that the long-term return of its stock is likely to be higher than its business growth.
Assessing Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Buckle has a cash-to-debt ratio of 1.05, ranking better than 65.15% of 1096 companies in the Retail - Cyclical industry. Based on this, GuruFocus ranks Buckle's financial strength as 7 out of 10, suggesting a fair balance sheet.
Evaluating Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Buckle has been profitable 10 over the past 10 years. With a revenue of $1.30 billion and an EPS of $4.78 over the past twelve months, Buckle's operating margin is 22.9%, ranking better than 95.86% of 1110 companies in the Retail - Cyclical industry. Overall, the profitability of Buckle is ranked 9 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. The average annual revenue growth of Buckle is13.7%, ranking better than 74.59% of 1043 companies in the Retail - Cyclical industry. The 3-year average EBITDA growth is 30%, ranking better than 80.36% of 891 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. The WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC exceeds the WACC, the company is likely creating value for its shareholders. During the past 12 months, Buckle's ROIC was 43.18 while its WACC came in at 7.64.
In conclusion, the stock of Buckle appears to be modestly undervalued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 80.36% of 891 companies in the Retail - Cyclical industry. To learn more about Buckle stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.