We believe that Crocs stock (NASDAQ: CROX), Tempur Sealy International Stock (NYSE: TPX), 1-800-Flowers.com stock (NASDAQ: FLWS), Nexstar Media Group stock (NASDAQ: NXST), and The E.W. Scripps Company Stock (NASDAQ: SSP) are currently better valued than Lowe’s stock (NYSE: LOW). Lowe’s current price-to-operating income ratio of 19x is higher than levels of 13x for CROX, 11x for TPX, 6x for FLWS, 5x for NSXT, and 3x for SSP. But does this gap in valuation make sense? We don’t think so, especially if we look at the fundamentals. More specifically, we arrive at our conclusion by looking at historical trends in revenues and operating income for these companies. Our dashboard Better Bet Than LOW: Pay Less To Get More From CROX, TPX, FLWS, NXST, SSP has more details – parts of which are summarized below.
1. Revenue Growth
Lowe’s Revenue increased at an average rate of 10% over the last three years as compared to Croc’s Revenue growth and Tempur Sealy International Revenue growth of 11%, 1-800-Flower’s.com Revenue growth of 23%, Nexstar’s Revenue growth of 24%, and E.W. Scripps Revenue growth of 29%. And, if we look at the revenue growth over the last twelve-month period – LOW’s 18% revenue growth is worse than 33% growth for TPX and SSP revenues, 35% for FLWS, and 73% for CROX. However, LOW’s revenue growth during this period is better than NXST’s 13% growth.
- Lowe’s is the world’s second-largest retailer of home improvement products, after Home Depot. The company offers a wide range of home improvement products and installation services to individual homeowners as well as professional builders. The retailer saw comparable sales increase 2.2% during the recent Q3 against a tough comparable. Comparable sales were also 34% higher than the mark from 2019. The company delivered operating margin expansion by driving productivity through disciplined operational execution and cost management.
- Crocs designs, manufactures, and markets footwear for men, women, and children under the namesake brand. In the fiscal third quarter, the company saw its sales soar 73% compared to the prior year. The company’s digital sales grew 69% year-over-year (y-o-y) in the third quarter, but still only represented about 37% of total revenue. That said, the casual footwear maker aims to push that growth for digital sales so it becomes the source of the majority of its revenue in the next five years. Crocs currently boast an impressive gross margin of 63.9% and a net margin of 24.5%.
- Tempur Sealy International is a manufacturer, marketer, and distributor of premium mattresses and pillows. In the recent quarter, the company’s revenues grew 20% y-o-y. However, its adjusted gross margin fell 440 bps from 2020, largely due to higher sales with no corresponding increase in gross margin dollars as the company passed on higher logistics costs to customers. Going forward, TPX reaffirmed 2021 sales growth expectations of 60% over pre-pandemic 2019 levels.
- 1-800-Flowers.com is an online gift retailer selling fresh-cut flowers, plants, gourmet foods, cookies, candy and wine, home and garden merchandise, under the brands Harry & David, Cheryl’s Cookies, Moose Munch, and The Popcorn Factory, among others. The company is making smart acquisitions and product expansions to further grow the company. In the recent quarter, the company’s revenues grew 9% y-o-y and the company reaffirmed its full-year guidance including revenue growth of 10%-to-12% and adjusted EBITDA growth of 5%-to-8%.
- Nexstar Media Group is the largest television station owner and operator in the U.S. Nexstar’s market-leading stations, sites, and local broadcast could undeniably bring in higher advertising dollars with an expected rebound in economic activities. To add some perspective, Nexstar derives approximately 70% of its non-political advertising revenue from local businesses – which is an important source of revenue for the company and is generated by selling ad time to businesses such as restaurants and retailers.
- The E.W.Scripps Company provides content and advertising services through its interests in national television networks, newspaper publishing, broadcast television, interactive media, and licensing and syndication. In the recent quarter, the company beat expectations on both top and bottom lines. SSP saw its revenues grow 13% y-o-y during the quarter.
2. Operating Income Growth
Also, the operating growth for CROX, TPX, FLWS, NXST, and SSP compares favorably when compared to LOW in the last three year period. Better revenue growth for the former led to higher operating income. To add to this, LOW’s operating income growth in the last twelve months was also lower than the other five companies.
The Net of It All
Crocs, Tempur Sealy, 1-800-Flowers.com, Nexstar, and E.W. Scripps have seen higher growth in revenues and operating income than Lowe’s in the last three years. Yet, all five companies have a comparatively lower price-to-operating income ratio when compared to LOW. This underperformance in Lowe’s revenue and operating income growth compared to CROX, TPX, FLWS, NXST, and SSP reinforces our conclusion that LOW stock is expensive compared to these other companies. We think this gap in valuation will eventually narrow over time to favor the less expensive names.
Also, Lowe’s Peer Comparisons summarizes how the company fares against peers on metrics that matter.
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