Tapestry Inc (TPR, Financial) has recently experienced a daily gain of 2.99%, yet over the past three months, the stock has seen a decline of 30.64%. With an Earnings Per Share (EPS) of 3.88, investors are questioning whether the stock is significantly undervalued. This article aims to delve into the valuation analysis of Tapestry to determine its true market value and provide investors with a clear understanding of its investment potential.
Company Introduction
Tapestry Inc (TPR, Financial) is a distinguished name in the fashion industry, boasting esteemed brands like Coach, Kate Spade, and Stuart Weitzman. The company's diverse range of products is distributed across approximately 1,400 company-operated stores, wholesale channels, and e-commerce platforms. With a substantial portion of its sales stemming from North America, Tapestry has also established a significant presence in Europe and Asia. The recent strategic move to acquire Capri, along with its brands Michael Kors, Versace, and Jimmy Choo, positions Tapestry for an even broader market reach. Against this backdrop, the stock's current price of $28.28 is worth scrutinizing in comparison to its estimated fair value.
Summarize GF Value
The GF Value is a proprietary metric that calculates the intrinsic value of a stock. It incorporates historical trading multiples, a GuruFocus adjustment factor reflecting the company's past performance and growth, and projected future business performance. The GF Value Line, a visual representation of this fair value, serves as a benchmark for investors to gauge whether a stock is overvalued or undervalued.
According to the GF Value, Tapestry (TPR, Financial) is significantly undervalued. With a market cap of $6.50 billion and a GF Value of $52.32, the stock presents a potential upside for investors. This undervaluation suggests that the long-term return on Tapestry's stock could outpace its business growth, making it an attractive proposition for value investors.
Financial Strength
A company's financial strength is paramount in minimizing the risk of permanent capital loss. Tapestry's cash-to-debt ratio of 0.23 ranks below the median for the Retail - Cyclical industry, indicating some risk factors need to be considered. However, with an overall financial strength rating of 6 out of 10, Tapestry's financial health is deemed fair.
Profitability and Growth
Profitability is a critical indicator of a company's investment quality. Tapestry has a commendable track record, being profitable for 9 out of the past 10 years. The company's operating margin outperforms a majority of its peers, and its strong profitability is reflected in a robust Earnings Per Share (EPS) of $3.88 and revenues of $6.70 billion over the past 12 months. However, growth is equally essential, and while Tapestry's revenue growth rate is competitive within the industry, its EBITDA growth rate has not kept pace, indicating areas where improvement is needed.
ROIC vs. WACC
Comparing a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC) provides insight into its profitability relative to the capital invested. Tapestry's ROIC of 17.79 is nearly double its WACC of 9.07, signaling efficient capital management and the potential for value creation.
Conclusion
In summary, Tapestry (TPR, Financial) presents a compelling case as a significantly undervalued stock. Its fair financial standing, robust profitability, and efficient capital utilization offer a solid foundation for potential investors. While growth remains an area for improvement, the company's strategic acquisitions and brand strength may pave the way for future success. For a more detailed financial overview, interested parties can explore Tapestry's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
