On August 10, 2023, Tapestry Inc (TPR, Financial) experienced a daily loss of 13.22%, with a 3-month loss of -2.72%. Despite these figures, the company reported an Earnings Per Share (EPS) of 3.68. This raises the question: is Tapestry (TPR) modestly undervalued? In this article, we will delve into a comprehensive valuation analysis of Tapestry, providing insights into its financial health and growth prospects.
Introduction to Tapestry Inc
Tapestry, known for its fashion and accessory brands Coach, Kate Spade, and Stuart Weitzman, sells its products through company-operated stores, wholesale channels, and e-commerce. With North America accounting for 67% of its fiscal 2022 sales, the company also has a significant presence in Europe and Asia. Women's handbags and accessories contributed to 69% of Tapestry's sales in fiscal 2022. Despite a current share price of $35.79, the fair value (GF Value) of Tapestry is estimated at $45.23, indicating that the stock might be modestly undervalued.
Understanding the GF Value of Tapestry
The GF Value is a proprietary measure that estimates a stock's intrinsic value, considering its historical trading multiples, past performance and growth, and future business performance estimates. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher. In the case of Tapestry, the stock at $35.79 per share is estimated to be modestly undervalued.
Given this undervaluation, the long-term return of Tapestry's stock is likely to be higher than its business growth.
Link: These companies may deliever higher future returns at reduced risk.
Financial Strength of Tapestry
Investing in companies with strong financial strength reduces the risk of permanent loss. Tapestry has a cash-to-debt ratio of 0.2, which is lower than 69.33% of companies in the Retail - Cyclical industry. With an overall financial strength rating of 6 out of 10, Tapestry's financial health is fair.
Profitability and Growth of Tapestry
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Tapestry, with a profitability rank of 8 out of 10, has been profitable 9 out of the past 10 years. The company's operating margin of 17.21% is higher than 91.04% of companies in the Retail - Cyclical industry.
Furthermore, the growth of a company is a crucial factor in its valuation. Tapestry, with an average annual revenue growth of 6.1%, ranks better than 56.84% of companies in the Retail - Cyclical industry. Its 3-year average EBITDA growth is 9%, which ranks better than 52.72% of companies in the industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) to its weighted average cost of capital (WACC) can provide insights into its profitability. Tapestry's ROIC of 17.28 exceeds its WACC of 8.46, indicating value creation for its shareholders.
Conclusion
In summary, Tapestry's stock is estimated to be modestly undervalued. The company exhibits fair financial strength, strong profitability, and better-than-average growth. For more insights into Tapestry's financials, you can check out its 30-Year Financials here.
To discover high-quality companies that may deliver above-average returns, visit GuruFocus High Quality Low Capex Screener.
