Levi Strauss & Co (LEVI, Financial) experienced a daily loss of -3.38%, and a 3-month loss of -2.12%, with an Earnings Per Share (EPS) of 1.1. The question arises: is the stock significantly undervalued? This article aims to provide a comprehensive analysis of Levi Strauss (LEVI)'s valuation, offering readers valuable insights to make informed decisions. Read on to explore the financial health of the company, its profitability, growth, and intrinsic value.
An Overview of Levi Strauss & Co (LEVI, Financial)
Levi Strauss & Co is a renowned name in the apparel industry, known for designing, marketing, and selling a wide range of products including jeans, casual and dresses pants, tops, shorts, skirts, jackets, footwear, and related accessories. The products are sold under various brands like Levi's, Dockers, Signature by Levi Strauss & Co., and Denizen. The company operates through three regional segments: the Americas, Europe, and Asia, with the Americas being the key revenue driver. With a current stock price of $13.58 and a fair value (GF Value) of $20.19, Levi Strauss appears to be significantly undervalued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, computed considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. In the case of Levi Strauss, the stock appears to be significantly undervalued, indicating a potential for higher future returns.
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Financial Strength of Levi Strauss
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 buying shares. Levi Strauss has a cash-to-debt ratio of 0.21, which ranks worse than 66.09% of 991 companies in the Manufacturing - Apparel & Accessories industry. Based on this, GuruFocus ranks Levi Strauss's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth of Levi Strauss
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Levi Strauss has been profitable 8 years over the past 10 years. Its operating margin of 8.54% is better than 71.36% of 1037 companies in the Manufacturing - Apparel & Accessories industry. Overall, GuruFocus ranks Levi Strauss's profitability as fair.
Growth is probably one of the most important factors in the valuation of a company. Levi Strauss's 3-year average revenue growth rate is better than 50% of 1010 companies in the Manufacturing - Apparel & Accessories industry. Levi Strauss's 3-year average EBITDA growth rate is 8.1%, which ranks better than 50.47% of 860 companies in the Manufacturing - Apparel & Accessories industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital to the weighted average cost of capital. 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. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Levi Strauss's return on invested capital is 12.96, and its cost of capital is 8.69.
Conclusion
In conclusion, the stock of Levi Strauss (LEVI, Financial) gives every indication of being significantly undervalued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 50.47% of 860 companies in the Manufacturing - Apparel & Accessories industry. To learn more about Levi Strauss stock, you can check out its 30-Year Financials here.
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