Unveiling Burlington Stores (BURL)'s Value: Is It Really Priced Right? A Comprehensive Guide
As of September 18, 2023, Burlington Stores Inc (NYSE:BURL) recorded a daily loss of 5.6% and a 3-month loss of 7.99%. With an Earnings Per Share (EPS) (EPS) of 4.06, the question arises: is the stock significantly undervalued? This article presents a comprehensive valuation analysis of Burlington Stores (NYSE:BURL). We invite you to delve into the following sections to understand the company's intrinsic value better.
Company Introduction
Burlington Stores Inc (NYSE:BURL) is the third-largest American dedicated off-price apparel and home fashion retail firm, boasting 927 stores as of the end of fiscal 2022. The company offers a vast assortment of products from over 5,000 brands, undercutting conventional retailers' regular prices by up to 60%. Burlington Stores focuses on providing a treasure-hunt experience with a quickly changing array of merchandise in a relatively low-frills shopping environment. The company's stock price and the GF Value, an estimation of fair value, will be compared in the following sections to provide a more profound exploration of the company's value.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value. It is calculated based on historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value that the stock should ideally be traded at.
The stock of Burlington Stores (NYSE:BURL) appears to be significantly undervalued based on GuruFocus' valuation method. The GF Value estimates the stock's fair value based on three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. If the share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. On the other hand, if the share price is significantly below the GF Value calculation, the stock may be undervalued and have higher future returns. At its current price of $ 139.51 per share, Burlington Stores stock appears to be significantly undervalued.
Because Burlington Stores is significantly undervalued, the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Investing in companies with poor financial strength has a higher risk of permanent loss of capital. Thus, it is important to carefully review the financial strength of a company before deciding whether to buy its stock. Looking at the cash-to-debt ratio and interest coverage is a great starting point for understanding the financial strength of a company. Burlington Stores has a cash-to-debt ratio of 0.11, which is worse than 79.64% of 1100 companies in the Retail - Cyclical industry. GuruFocus ranks the overall financial strength of Burlington Stores at 5 out of 10, which indicates that the financial strength of Burlington Stores is fair.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Burlington Stores has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $9.10 billion and Earnings Per Share (EPS) of $4.06. Its operating margin is 4.98%, which ranks better than 58.73% of 1105 companies in the Retail - Cyclical industry. Overall, the profitability of Burlington Stores is ranked 8 out of 10, which indicates strong profitability.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term performance of a company's stock. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Burlington Stores is 6.8%, which ranks better than 60.04% of 1046 companies in the Retail - Cyclical industry. The 3-year average EBITDA growth rate is -7.9%, which ranks worse than 78.35% of 896 companies in the Retail - Cyclical industry.
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, Burlington Stores's ROIC is 5.73 while its WACC came in at 8.53.
Conclusion
In summary, the stock of Burlington Stores (NYSE:BURL) appears to be significantly undervalued. The company's financial condition is fair and its profitability is strong. Its growth ranks worse than 78.35% of 896 companies in the Retail - Cyclical industry. To learn more about Burlington Stores stock, you can check out its 30-Year Financials here.
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This article first appeared on GuruFocus.
