Levi Strauss & Co (LEVI, Financial) has recently experienced a notable daily gain of 12.38% and a three-month gain of 35.41%, with an Earnings Per Share (EPS) sitting at $0.31. Amidst this positive market movement, the critical question arises: is the stock modestly overvalued? This article delves into a valuation analysis to address this query and invites readers to explore the financial nuances of Levi Strauss (LEVI).
Company Introduction
Levi Strauss & Co is a renowned entity in the apparel industry, designing, marketing, and selling a wide range of products under various well-known brands. The company operates across three regional segments, with the Americas being the primary revenue driver. A comparison between Levi Strauss's current stock price of $20.97 and the GF Value of $18.51 suggests a potential overvaluation. This introduction sets the stage for an in-depth analysis of the company's intrinsic value, aligning financial assessment with key company insights.
Understanding the GF Value
The GF Value is a unique measure of a stock's intrinsic value, integrating historical trading multiples, a GuruFocus adjustment factor, and future business performance projections. The GF Value Line serves as a benchmark for the stock's ideal fair trading value. When a stock's price significantly exceeds this line, it is considered overvalued, which may lead to subpar future returns. Conversely, a price well below the GF Value Line could indicate higher potential returns. Currently, Levi Strauss (LEVI, Financial), with a market cap of $8.30 billion, appears modestly overvalued at its price of $20.97 per share.
Given this relative overvaluation, the long-term return of Levi Strauss's stock may lag behind its business growth.
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Financial Strength Assessment
Investors must consider a company's financial strength to mitigate the risk of permanent capital loss. Key indicators such as the cash-to-debt ratio and interest coverage are instrumental in this evaluation. Levi Strauss's cash-to-debt ratio of 0.24 ranks below average in its industry, suggesting a fair financial strength rating of 6 out of 10. The following chart illustrates the company's debt and cash positions over recent years:
Profitability and Growth Prospects
Consistent profitability is a less risky prospect for investors, and Levi Strauss has been profitable for 9 out of the past 10 years. With a 6.67% operating margin, the company stands better than two-thirds of its peers. The firm's profitability rank is a solid 7 out of 10. Furthermore, Levi Strauss's growth is impressive, with a 3-year average revenue growth rate surpassing 71% of industry counterparts and a staggering 3-year average EBITDA growth rate of 139.8%.
ROIC vs. WACC: A Comparative Analysis
Profitability can also be gauged by comparing the Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC). Ideally, ROIC should exceed WACC, indicating effective cash flow generation relative to capital investment. Levi Strauss's ROIC of 10.87 is favorable when juxtaposed with its WACC of 9.97. Below is a historical comparison of the company's ROIC and WACC:
Conclusion
In summary, Levi Strauss (LEVI, Financial) exhibits signs of modest overvaluation. The company's financial condition and profitability are fair, with growth outpacing the vast majority of its industry rivals. To gain further insight into Levi Strauss stock, interested parties are encouraged to examine 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.
