Urban Outfitters Inc (URBN, Financial) recently experienced a notable daily loss of 12.37%, with a 3-month decline of 7.19%. In this context, investors are contemplating whether the stock is fairly valued. The Earnings Per Share (EPS) stands at 2.4, a critical factor in this valuation consideration. The following analysis aims to shed light on Urban Outfitters' valuation, encouraging readers to explore the depths of the company's market positioning.
Company Overview
Founded in 1970, Urban Outfitters Inc (URBN, Financial) is a Philadelphia-based retailer specializing in apparel and home goods. With around 700 stores and a strong e-commerce presence in North America and beyond, the company operates under various retail nameplates including Urban Outfitters, Free People, FP Movement, and Anthropologie. Urban Outfitters primarily targets young adults, offering products ranging from apparel, which accounts for 63% of fiscal 2023 sales, to home goods and accessories. While retail sales comprise 92% of its revenue, Urban Outfitters also engages in wholesale, restaurant operations, and a clothing rental and resale business named Nuuly.
Comparing the stock price of $31.82 to the GF Value of $34.36, a measure of estimated fair value, sets the stage for an in-depth analysis of Urban Outfitters' intrinsic worth.
Understanding GF Value
The GF Value is a proprietary metric that represents the intrinsic value of a stock, calculated through a unique methodology. It takes into account historical trading multiples such as PE, PS, PB ratios, and Price-to-Free-Cash-Flow. Additionally, it includes a GuruFocus adjustment factor based on past returns and growth, and integrates analyst estimates of future business performance. This GF Value Line serves as a benchmark, suggesting the stock's fair trading value.
Urban Outfitters (URBN, Financial) is currently deemed fairly valued according to GuruFocus' valuation method. The stock's price closely aligns with the GF Value Line, implying that the long-term return on the stock should mirror the company's business growth rate.
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Financial Strength Assessment
Before investing, it's crucial to evaluate a company's financial strength. Urban Outfitters' cash-to-debt ratio of 0.43 places it in the lower half of the Retail - Cyclical industry. However, with a financial strength rating of 6 out of 10, the company's financial health is considered fair. This is further illustrated by the company's historical debt and cash flow.
Profitability and Growth Insights
Investing in consistently profitable companies is generally less risky. Urban Outfitters has maintained profitability for the past decade, with a strong operating margin that outperforms over half of its industry peers. This has earned it a profitability rank of 8 out of 10. In terms of growth, the company's 3-year average annual revenue growth of 8.7% is commendable, although its EBITDA growth rate lags behind the industry average.
ROIC vs WACC Analysis
Comparing Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC) is another way to gauge profitability. Urban Outfitters' ROIC of 8.06 is slightly below its WACC of 8.73, suggesting that it is not creating excess value over its capital costs. The historical comparison of the company's ROIC versus WACC is shown below.
Conclusive Thoughts on Urban Outfitters' Valuation
Urban Outfitters (URBN, Financial) appears to be fairly valued, with sound financial health and strong profitability. Despite its growth ranking below many competitors in the Retail - Cyclical industry, the company has established a solid foundation. For a more detailed look into Urban Outfitters' financials, you 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.
