Urban Outfitters Inc (URBN, Financial) experienced a daily loss of 3.34% and a 3-month loss of 4.01%. Despite these losses, it reported an Earnings Per Share (EPS) (EPS) of 2.4. The question that arises is whether the stock is fairly valued. This article aims to provide a comprehensive valuation analysis of Urban Outfitters Inc (URBN) to help investors make informed decisions. We invite you to read on for a detailed understanding of the company's value.
Company Introduction
Founded in 1970, Urban Outfitters is a Philadelphia-based apparel and home goods retailer. With about 700 stores and e-commerce operations in North America (accounting for 87% of fiscal 2023 sales) and other regions, it has established a strong presence in the retail market. Its retail nameplates include Urban Outfitters, Free People, FP Movement, and Anthropologie. The company primarily markets to young adults and offers products in categories such as apparel (63% of fiscal 2023 sales), home goods (19% of sales), and accessories (13% of sales).
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
Our analysis suggests that Urban Outfitters (URBN, Financial) appears to be fairly valued. The stock's fair value, as estimated by the GF Value, is based on historical multiples, an internal adjustment factor based on the company's past business growth, and analyst estimates of future business performance. If the stock's share price is significantly above the GF Value Line, the stock may be overvalued and have poor future returns. Conversely, if the stock's share price is significantly below the GF Value Line, the stock may be undervalued and have high future returns. With its current price of $31.42 per share, Urban Outfitters has a market cap of $2.90 billion and appears to be fairly valued.
As Urban Outfitters is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth.
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Assessing Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss to investors. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Urban Outfitters has a cash-to-debt ratio of 0.43, which ranks worse than 52.36% of 1100 companies in the Retail - Cyclical industry. The overall financial strength of Urban Outfitters is 6 out of 10, indicating fair financial strength.
Profitability and Growth
Consistent profitability over the long term offers less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Urban Outfitters has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $4.90 billion and Earnings Per Share (EPS) of $2.4. Its operating margin is 6.03%, which ranks better than 63.66% of 1098 companies in the Retail - Cyclical industry. Overall, the profitability of Urban Outfitters is ranked 8 out of 10, indicating strong profitability.
Growth is probably the most important factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Urban Outfitters is 8.7%, which ranks better than 65.93% of 1045 companies in the Retail - Cyclical industry. The 3-year average EBITDA growth rate is -0.6%, which ranks worse than 68.71% of 898 companies in the Retail - Cyclical industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. 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. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Urban Outfitters's ROIC was 8.06, while its WACC came in at 8.51.
Conclusion
Overall, Urban Outfitters (URBN, Financial) stock appears to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks worse than 68.71% of 898 companies in the Retail - Cyclical industry. To learn more about Urban Outfitters stock, you can check out its 30-Year Financials here.
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