Nordstrom Inc (JWN, Financial) recently showcased a notable daily gain of 7.16% and has experienced a 3-month gain of 25.35%. With an Earnings Per Share (EPS) of $0.72, investors are pondering whether the stock is modestly undervalued. This article delves into the valuation analysis of Nordstrom, aiming to provide a clear answer to this pressing question for value investors and those considering membership with GuruFocus.com.
Company Introduction
Nordstrom Inc (JWN, Financial), a prominent fashion retailer, operates around 93 department stores and approximately 260 off-price Nordstrom Rack stores. The company's e-commerce sites, clearance stores, and Local locations complement its physical presence. With a history dating back to a Seattle shoe store in 1901, Nordstrom remains partially owned and managed by the founding family. The company's significant merchandise categories include women's apparel, shoes, men's apparel, and women's accessories. When comparing Nordstrom's current stock price of $17.52 to the GF Value of $22.4, it appears that the stock may be trading below its fair value, suggesting a potential undervaluation.
Summarize GF Value
The GF Value is a unique measure that determines the intrinsic value of a stock. It incorporates historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and projected future business performance. The GF Value Line suggests the ideal fair trading value for Nordstrom, and deviations from this line may indicate overvaluation or undervaluation.
According to GuruFocus' valuation method, Nordstrom (JWN, Financial) seems modestly undervalued. The GF Value estimates the fair value by considering historical multiples, an internal adjustment based on past business growth, and future business performance estimates. If the price is significantly below the GF Value Line, as is the case with Nordstrom at $17.52 per share, the stock may be undervalued, potentially leading to higher future returns.
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Financial Strength
Assessing a company's financial strength is crucial to avoid potential capital loss. Nordstrom's financial strength is scored at 4 out of 10 by GuruFocus, indicating a weaker balance sheet compared to industry peers. With a cash-to-debt ratio of 0.08, ranking below 84.28% of companies in the Retail - Cyclical industry, investors should be cautious about the company's financial leverage.
Profitability and Growth
Investing in profitable companies is typically less risky, particularly those with a history of consistent profitability. Nordstrom has been profitable for 9 out of the past 10 years. With a 12-month revenue of $14.60 billion and an EPS of $0.72, the company's operating margin stands at 3.47%, which is competitive within its industry. However, Nordstrom's growth rates in revenue and EBITDA are lower than many of its industry counterparts, indicating potential challenges ahead.
ROIC vs. WACC
Comparing Return on Invested Capital (ROIC) with the Weighted Average Cost of Capital (WACC) provides insight into a company's profitability relative to the capital cost. Nordstrom's ROIC of 7.28% is slightly higher than its WACC of 7.22%, suggesting the company is generating a minimal positive return on its investments.
Conclusion
In conclusion, Nordstrom (JWN, Financial) appears to be modestly undervalued. The company's financial condition is less robust, and its profitability is fair, with growth ranking below many competitors in the Retail - Cyclical industry. To gain a deeper understanding of Nordstrom's financial health, interested parties can explore its 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.
