GrowthTurtle
Data Science PhD & IEEE Fellow, Ex-Two Sigma
Gap looks cheap against its cash earnings, trading at 7x when retailers usually get 12x. Fair value is $46.44 to $59.11, or 12x next year's cash earnings give or take 12%, leaving the $23.48 price 49% below the low end of that range. This is a levels-only read from reported earnings and revenue estimates, with no fundamental work. x.comÂ
Gap is now cheaper than Abercrombie & Fitch, trading at 7.5x forward earnings with 16% net cash, so the setup might work. x.comÂ
Acushnet looks overvalued after a 30% jump over the past month, trading at 30x next year's numbers for a low-single-digit-growth retailer. x.comÂ
Gap is hard to get excited about because the business is so heavily Old Navy, and that brand is weak. x.com x.comÂ
Lululemon is probably going lower because sales and margins are imploding while inventory grows, and a new unproven CEO is coming in. Q3 guidance calls for revenue down 10-11%, North America down mid-teens and inventory up low single digits; full-year revenue should fall 5-7% with inventory up mid single digits. Even granting $6 of annualized EPS versus a ~$4 run rate, 12x for an off-trend retailer implies about $70, versus $100 after an 18% drop. x.com x.comÂ
Costco is hard to justify at more than 40 times forward earnings while earnings grow only in the low teens. It behaves more like a sticky, mature subscription business than a traditional retailer, but that does not support the multiple. x.comÂ
Abercrombie & Fitch looks crazy cheap at 7.4x trailing earnings with net cash equal to 23% of its value, as the company is printing money and has bought back 6.2% of its shares a year over the past five years. The downside risk is overstated. x.com x.comÂ
