Today, Foot Locker Inc (FL, Financial) experienced a notable daily loss of 5.68%, contributing to a three-month decline of 24.36%. With a Loss Per Share standing at 3.51, investors and analysts are prompted to question whether the stock is significantly undervalued. This analysis aims to explore Foot Locker's valuation comprehensively, encouraging readers to delve into the details that follow.
Company Introduction
Foot Locker Inc operates an extensive network of retail stores across multiple continents including North America, Europe, Asia, and Australia, primarily selling athletically inspired shoes and apparel. With a significant dependence on Nike for merchandise, Foot Locker also boasts a variety of brands like Kids Foot Locker and Champs Sports under its umbrella. The company's innovative omnichannel approach bridges the digital and physical storefronts, enhancing consumer engagement and sales processes. Currently, with a stock price of $22.74, Foot Locker's market capitalization stands at $2.10 billion, juxtaposed against a GF Value of $34.88, suggesting a potential undervaluation.
Understanding the GF Value
The GF Value is a proprietary measure calculated to represent the intrinsic value of a stock. It incorporates historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. According to our analysis, Foot Locker's current stock price significantly trails its GF Value, indicating that it is undervalued. This discrepancy suggests that the long-term return on Foot Locker's stock could potentially outpace its business growth.
Financial Strength and Stability
Before investing, assessing a company's financial health is crucial. Foot Locker's cash-to-debt ratio is 0.1, positioning it lower than 82.84% of its peers in the Retail - Cyclical industry. This metric, along with a fair financial strength rating of 6 out of 10, suggests that while Foot Locker maintains a stable financial base, there are areas of risk that require careful consideration.
Profitability and Growth Prospects
Foot Locker has demonstrated profitability in 9 out of the past 10 years, with recent revenues reaching $8.20 billion. However, its operating margin stands at 1.7%, which is lower than 61.17% of competitors. The company's growth metrics also present a mixed picture, with a revenue growth rate better than 53.09% of industry peers but a 3-year average EBITDA growth of 0%, highlighting areas for potential improvement.
Comparative Analysis of ROIC and WACC
An effective way to evaluate profitability is by comparing the Return on Invested Capital (ROIC) against the Weighted Average Cost of Capital (WACC). Currently, Foot Locker's ROIC is 1.72, significantly below its WACC of 5.83, indicating inefficiencies in generating adequate returns on invested capital relative to the cost of financing.
Conclusion
Despite the challenges reflected in certain financial metrics, Foot Locker (FL, Financial) appears significantly undervalued based on our GF Value assessment. This valuation suggests potential for higher long-term returns, contingent on strategic improvements and market conditions. For a detailed financial history of Foot Locker, interested investors can view 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.
