Carter's Inc. (CRI, Financial) has been on a stable path over the past year, with the stock price down 4% from its 52-week high of $109.53, soaring lately by a recent rally in the middle of February. With strong fundamentals, old and strong brand name recognition and growing earnings, is this a good time for investors to fill up their shopping carts with Carter's? Let's take a look at these factors first and see if value is present for a company with 14% market share of the baby and children's market.
Mature, not infant, fundamentals
Revenue growth has been strong and steady for Carter's, as the company has seen a 10-year average revenue growth rate of 10.34%. Earnings have seen stable and strong growth, with a 10-year average growth rate of 18.89%. When it comes to margins, the company is slightly below the beverage industry averages of 47.02% and 7.6% for gross and net margins. Carter's come in at 41.70% and 9.40%. This could be due to the age of the business as well as its merchandising strategy.
Return on equity for the children's retailer has averaged 21.62% over the past 10 years -- exceptional as the average U.S. business ROE is 10.77%. Carter's ROE is getting stronger, as the company has seen a five-year average growth rate of 25.24%. Observing the balance sheet key ratios for Carter's uncovers satisfactory financial health, as the 2015 balance sheet showed debt to equity of 0.67 and a current ratio of over 4.
In a recent filing, the company stated “In the $18.9 billion baby and young children’s apparel market (ages zero to seven) in the U.S., the Carter’s brand has a #1 position with a 13.6% market share and the OshKosh brand has a 2.5% market share.” This is not a huge surprise given that Carter's has been in business since 1865 and has a market cap of $5.43 billion, while Carter's closest competitor, Gerber, has been going for over 77 years as a privately held company.
Having brand-name recognition gives Carter's a durable competitive advantage. Popularity with new mothers over the years has helped to create consistent brand loyalty, as moms spread the word to other moms.
Patience is a valuable virtue
The P/E ratio for Carter's is 23.23, while the current average P/E for a basket of apparel stocks is 18.42. With Carter's, you are paying $23.30 for every $1 in earnings. Currently the average stock costs $21 for every $1 of its earnings. With Carter's expected next year earnings growth rate of 10.20%, the company is moderately priced with upside potential.
Carter's is strong and growing, with time-tested fundamentals and thousands of mothers around the country evangelizing the brand. After a post earnings rally in mid-February, the stock has jumped. With strong earnings and solid share price growth, this company has the potential to continue higher. If the price plunges, then it's time to dress your kids and add some Carter's shares to your shopping cart.
