Long-established in the Retail - Cyclical industry, Farfetch Ltd (FTCH, Financial) has enjoyed a stellar reputation. It has recently witnessed a surge of 0.17%, juxtaposed with a three-month change of -46.05%. However, fresh insights from the GuruFocus Score Rating hint at potential headwinds. Notably, its diminished rankings in financial strength, growth, and valuation suggest that the company might not live up to its historical performance. Join us as we dive deep into these pivotal metrics to unravel the evolving narrative of Farfetch Ltd.
Understanding the GF Score
The GF Score is a stock performance ranking system developed by GuruFocus using five aspects of valuation, which has been found to be closely correlated to the long-term performances of stocks by backtesting from 2006 to 2021. The stocks with a higher GF Score generally generate higher returns than those with a lower GF Score. Therefore, when picking stocks, investors should invest in companies with high GF Scores. The GF Score ranges from 0 to 100, with 100 as the highest rank.
- 1. Financial strength rank: 3/10
- 2. Profitability rank: 3/10
- 3. Growth rank: 6/10
- 4. GF Value rank: 2/10
- 5. Momentum rank: 8/10
Based on the above method, GuruFocus assigned Farfetch Ltd the GF Score of 64 out of 100, which signals poor future outperformance potential.
Farfetch Ltd: A Snapshot
Farfetch Ltd is an online platform connecting sellers and buyers of personal luxury goods. Founded in 2008, the company partners with over 1,000 luxury goods sellers to offer their inventory on the platform. With a market cap of $1.15 billion and sales of $2.35 billion, Farfetch charges a cut of over 30% (third-party take rate) for making the retailers' stock available to almost a million active customers. The company operates digital marketplace platform Farfetch, Browns stores, acquired branded company New Guard Group and Farfetch solutions, powering e-commerce operations of luxury brands. However, its operating margin stands at -32.91%, indicating potential profitability issues.
Financial Strength Breakdown
Farfetch Ltd's financial strength indicators present some concerning insights about the company's balance sheet health. The company's interest coverage ratio of 0 positions it worse than 0% of 766 companies in the Retail - Cyclical industry. This ratio highlights potential challenges the company might face when handling its interest expenses on outstanding debt. The company's Altman Z-Scoreis just 0.26, which is below the distress zone of 1.81. This suggests that the company may face financial distress over the next few years. Additionally, the company's low cash-to-debt ratio at 0.39 indicates a struggle in handling existing debt levels. The company's debt-to-equity ratio is 2.5, which is worse than 88.9% of 973 companies in the Retail - Cyclical industry. A high debt-to-equity ratio suggests over-reliance on borrowing and vulnerability to market fluctuations.
Profitability Breakdown
Farfetch Ltd's low Profitability rank can also raise warning signals. Farfetch Ltd's Operating Margin has declined over the past five years ((-18,941.00%)), as shown by the following data: 2018: -28.77; 2019: -42.07; 2020: -34.68; 2021: -20.58; 2022: -30.67. Additionally, Farfetch Ltd's Gross Margin has also declined over the past five years, as evidenced by the data: 2018: 49.54; 2019: 45.04; 2020: 46.06; 2021: 45.05; 2022: 44.17. This trend underscores the company's struggles to convert its revenue into profits. With a Piotroski F-Score of 2, Farfetch Ltd's financial health appears concerning. This score, rooted in Joseph Piotroski's nine-point scale, evaluates a firm's profitability, liquidity, and operating efficiency. Given its rating, Farfetch Ltd might be facing challenges in these areas.
Conclusion
Given Farfetch Ltd's financial strength, profitability, and growth metrics, the GuruFocus Score Rating highlights the firm's unparalleled position for potential underperformance. While the company has a strong presence in the luxury goods market, its financial indicators suggest potential challenges in profitability and debt management. As such, investors should exercise caution and conduct further research before making investment decisions. GuruFocus Premium members can find more companies with strong GF Scores using the following screener link: GF Score Screen.
