May 24, 2022
[7 min Read]
Today we are looking at Abercrombie & Fitch Co. (NYSE: ANF), to determine if you should buy ANF stock. We will look at ANF financial ratios, analyst ratings, and current valuation to determine a ANF forecast and price.
$ANF - Abercrombie & Fitch Co., through its subsidiaries, operates as a specialty retailer. The company operates in two segments, Hollister and Abercrombie. It offers an assortment of apparel, personal care products, and accessories for men, women, and children under the Hollister, Abercrombie & Fitch, abercrombie kids, Moose, Seagull, Gilly Hicks, and Social Tourist brands. As of January 29, 2022, it operated approximately 729 retail stores in Europe, Asia, Canada, the Middle East, United States, and more.
In order to undergo a comparable analysis (to determine ANF stocks value), we need to first outline who ANF's competitors are.
These competitors need to be publicly listed, have valid financial metrics/multiples, operate in a similar manner to ANF, and have a market cap similar to ANF (if possible).
By keeping this in mind, I found the following list of companies to be some of ANF stocks closest competitors:
EVRI, MTOR, BKE, BALY, CWH, KAR, SBH, EAT, OI, SAH
ANF recently released their Q1 2022 earnings report in which they beat revenue estimates by 2%, however they reported an EPS loss of $0.27/share when they were expected to report an EPS gain of $0.08/share. This news sent the retailer down 30% the following trading day. ANF joins a long list of retailers who have fell on poor Q1 2022 financials due to high levels of inflation.
Overall, ANF had a great financial performance in 2021, and it looked as though they were set to bounce back and gain back the market share they lost over the past decade or so. However, how was their most recent performance (aside from the Q1 2022 report)? Let's find out
Overall, it seems as though ANF had a great financial performance (due to EPS $0.38) as many of their financial metrics grew, most notably their EPS (by $0.38), as well as their net income (by $18.28M), and other metrics (as you can tell from the above bullet points).
However, we know that this great recent performance was just offset by their poor Q1 2022 performance. Does this recent poor performance open the door to a great investment opportunity (as it is down 30%)? I think so, but let's find out...
As part of their Q4 2022 earnings release, ANF stated that they currently have 55.74M Shares Outstanding (weighted average), which is down -3.06M shares (from 58.8M shares outstanding in Q3 2022). This is great to see as an investor and is one less thing that we need to worry about when investing into the ANF stock.
Furthermore, ANF stock has up to 2.67M of shares that they can issue (thereby diluting ANF's stock). This maximum dilution for the period would only have a dilutionary effect on ANF of 5.31%, which is slightly worrying. However, ANF has bought back more shares than they could possibly issue which is a positive overall sign.
Here is the current analyst rating distribution for ANF. In total there are 22 ANF stock analyst ratings.
Analyst Ratings have provided relatively strong indicators of future price movement, which is why they are used to determine if ANF stock is a buy or sell. This board is pretty split, which indicates that there is no consenus on where ANF will go from here (which can be good if we have conviction).
Currently, we have 3 financial ratings that help investors get a general idea of a company's valuation. These 3 metrics include DCF, ROE, and P/E, which are very common in the investing/valuation climate.
Firstly, ANF stock has a DCF rating of 5 - Very Strong. DCF ratings determine the value behind a company based on their financial projections, expectations, and discount rate (time value of money). This is one of the most used valuation models in the stock market, and thus a high level of importance should be associated with this rating.
Secondly, ANF stock has an ROE rating of 3 - Neutral. ANF's current ROE is 28.96%, which justifies their rank of 3 - Neutral. ROE shows us how good (or bad) a company is at using their shareholders funds to generate money (returns). ROE is most useful when compared against the industry average, which is currently 65.16%. I think ANF should have a rating of 4 as their ROE is very high (but not a 5 becasue it is not higher than the industry average.
Lastly, ANF stock has a P/E rating of 4 - Strong. ANF stock price to earnings ratio is currently 6.36 which justifies their rank of 4 - Strong. Price to Earnings is the most commonly found financial metric and is best used when comparing a company's p/e to the industry average. ANF operates in the Apparel Retail industry, which currently has an average P/E of 14.48. Due to ANF's p/e being well below their industry average I would say that this score should be a 5.
Overall, based on the 3 previously mentioned fields, ANF stock has been given a comprehensive rating of 4 - Strong. This rating implies that they are healthy financially.
As we know, ANF stock has been given an overall rating of 4 - Strong. This implies that ANF is sound fundamentally and is a good candidate for being “undervalued”. With this in mind, let's proceed.
Overall, ANF stock is undervalued and needs to experience a change in stock price of (an average of) 88.59% to be considered “at fair value”.
Overall, due to the overall stock rating of 4 - Strong (Based off of DCF, ROE, and P/E), as well as the fact that a comparable analysis (P/E and P/B) found that ANF was undervalued and need to experience a price change of 88.59% in order to be at their fair value, I have concluded the following:
ANF is Undervalued, and I would consider adding it to my portfolio as a rebound play. I do not know if I would hold the ANF stock for a long period of time, this decision would have to be re-evaluated as financials come out.