Guess Stock Up 30% in Last Month. What’s Next?
Guess stock (NYSE: GES), a retailer that designs, markets, distributes, and licenses apparel and accessories for men, women, and children, became vulnerable during the pandemic due to its nonessential product assortment. Consequently, the company’s stock has lost 16% of its value so far this year, and currently stands at around $19. While the retailer’s stock has gained around 32% in the last one month, thanks to Covid vaccine news and better-than-expected Q3 results, we believe that the stock is now appropriately valued at the current price for the near term. This is taking into account Guess’ revenues which have declined 33% year-over-year (y-o-y) so far, due to weakness across all operating segments. Also, Guess’ revenue grew at a slower pace of 4% annual growth in fiscal 2020, as compared to an 8% growth in the previous year. In addition, management troubles and struggles to keep up with the ever-changing market have put pressure on its earnings even before the pandemic. In fact, the company had just announced a five-year plan for double-digit operating margin performance mainly anchored on operational efficiencies when the virus hit. All this indicates that the retailer could likely get back to its slower pace growth once the Covid threat abates. Our dashboard, ‘What Factors Drove 9% Decline in Guess Stock Between 2018 And Now?‘ provides the key numbers behind our thinking, and we explain more below.
Some of the stock price rise over the last 2 years was justified by the roughly 13% growth seen in Guess’ revenues from $2.4 billion in FY2018 (ending January 2018) to $2.7 billion in FY2020, which was further aided by a 14% decline in shares outstanding. Taken together, this helped revenue per share surge by 31% from around $29 in FY2018 to $38 in FY2020.
Finally, Guess’ P/S multiple was essentially flat between fiscal 2018 and fiscal 2020 at 0.6x. While the company’s P/S has now decreased to 0.5x, it seems to be fairly valued, given the volatility of the current situation.
How Is Coronavirus Impacting Guess Stock?
It should be noted that revenues declined by 8% y-o-y in the recent Q3, which was a meaningful improvement compared with the 46% y-o-y declines that the apparel maker suffered through the first half of the year. In addition, earnings per share came in at a loss of $2.35 in the first nine months of this year, compared to $0.22 during the same period last year. Going forward, the retailer expects revenue in the fiscal fourth quarter to be down in the low to mid-twenties percentages due to store closures and product development changes.
What if you’re looking for a more balanced portfolio instead? Here’s a high quality portfolio to beat the market, with over 100% return since 2016, versus 55% for the S&P 500. Comprised of companies with strong revenue growth, healthy profits, lots of cash, and low risk, it has outperformed the broader market year after year, consistently.
See all Trefis Price Estimates and Download Trefis Data here
What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams