Guess?, Inc. (NYSE: GES) investors have enjoyed seeing the stock price increase by 56.6% over the last month. As a small-cap stock with decent coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. However, could shares still be trading at a relatively cheap price? Let’s take a look at the company’s expected growth and valuation based on its most recent financial data to see if there is further upside moving forward.
Is Guess?, Inc Still Cheap?
The stock seems fairly valued at the moment according to 11 separate valuation analyses. Shares are trading roughly 3% above its intrinsic value. This means if you were to buy Guess?, Inc today, you’d be paying a reasonable price for it. If you believe that the stock is really worth $22.35, then there isn’t much room for the share price to appreciate beyond where it’s currently trading.
|Analysis||Model Fair Value||Upside (Downside)|
|10-yr DCF Revenue Exit||$20.71||-9.8%|
|5-yr DCF Revenue Exit||$24.04||4.7%|
|Peer Revenue Multiples||$28.13||22.5%|
|10-yr DCF EBITDA Exit||$23.43||2.0%|
|5-yr DCF EBITDA Exit||$28.12||22.4%|
|Peer EBITDA Multiples||$17.35||-24.4%|
|10-yr DCF Growth Exit||$13.87||-39.6%|
|5-yr DCF Growth Exit||$13.75||-40.1%|
|Dividend Discount Model||$24.04||4.7%|
|Dividend Discount Model (multi-stage)||$21.31||-7.2%|
|Earnings Power Value||$31.12||35.5%|
Click on any of the analyses above to view the latest model with real-time data.
In addition, it seems like Guess?, Inc’s share price is quite stable, which could mean there may be less chances to buy low in the future now that it’s fairly valued. This is because the stock is less volatile than the wider market given its beta of 0.16.
What Does The Future Of Guess?, Inc Look Like?
Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company’s future expectations.
source: finbox.io data explorer
With Guess?, Inc’s relatively muted top-line growth of 2.7% expected over the next five years on average, growth doesn’t seem like a key catalyst for a buying decision, at least in the short to medium-term.
How This Impacts You
Many investors separate stocks into value and growth categories based on quantitative metrics. However, one of the most famous investors in the world views this as foolish. In Warren Buffett’s 1992 letter to Berkshire Hathaway shareholders, Buffett touches upon a subject at odds with much of the investment industry:
“Most analysts feel they must choose between two approaches customarily thought to be in opposition: ‘value’ and ‘growth.’ Indeed, many investment professionals see any mixing of the two terms as a form of intellectual cross-dressing. We view that as fuzzy thinking… In our opinion, the two approaches are joined at the hip: Growth is always a component in the calculation of value.”
While investors tend to categorize stocks into value and growth, some of the most successful investors view growth as simply one component of a company’s value.
Guess?, Inc’s future growth is relatively low and the stock appears fairly valued at the moment according to our valuation models. As a shareholder, you may have already conducted your fundamental analysis on the company and the stock’s recent appreciation may have been expected. Therefore, it may be time for investors to take some chips off the table. For prospective investors looking to purchase shares of Guess?, Inc, it may be worth holding off until the stock develops a larger margin of safety.
But before making an investment decision, I recommend you continue to research Guess?, Inc to get a more comprehensive view of the company by looking at:
Risk Metrics: what is Guess?, Inc’s asset efficiency? This ratio measures the amount of cash flow that a company generates from its assets. View the company’s asset efficiency here.
Valuation Metrics: what is Guess?, Inc’s EBITDA less CapEx multiple and how does it compare to its peers? This is a helpful multiple to analyze when comparing capital intensive businesses. View the company’s EBITDA less CapEx multiple here.
Efficiency Metrics: is management becoming more or less efficient in creating value for the firm? Find out by analyzing the company’s return on invested capital ratio here.
Author: Matt Hogan
Expertise: Valuation, financial statement analysis
Matt Hogan is also a co-founder of finbox.io. His expertise is in investment decision making. Prior to finbox.io, Matt worked for an investment banking group providing fairness opinions in connection to stock acquisitions. He spent much of his time building valuation models to help clients determine an asset’s fair value. He believes that these same valuation models should be used by all investors before buying or selling a stock.
Matt can be reached at firstname.lastname@example.org.
As of this writing, I did not hold a position in any of the aforementioned securities and this is not a buy or sell recommendation on any security mentioned.