Opportunity in a Mid-cap Stock Like Foot Locker?

A deep-dive into Foot Locker's Valuation

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Foot Locker, Inc. (NYSE:FL) is a retail company specializing in footwear, athletic wear, and apparel. The company has done an excellent job with its branding over the years and has managed to integrate themselves as a part of urban culture consistently. Aside from the brand's strong presence in the athletic wear arena, the company has expanded beyond the world of sports to become an overall hub for urban fashion.

Not surprisingly, though, Foot Locker was one of the many retailers heavily impacted by the coronavirus pandemic this year. In the company's first-quarter earnings report, Foot Locker missed expectations by a fairly large margin of 42 cents. In February of this year, FL stock began falling from the $40 range and bottomed out at $17.46 in March. As of today, FL stock has increased nearly 100% since hitting a 52-week low in March.

So, given the ongoing pandemic, doesn't this growth strike some as a bit unjustifiable? , It's critical to remember that stock value involves many more factors below the service of the current environment when attracting investors. Specifically, let's talk valuation. Stock valuation is the method of calculating theoretical values of companies and their stocks, and is extremely important when breaking down the attractiveness of a stock.

Foot Locker is mid-size market cap company with a current valuation of $3.456 billion. FL stock trades at a price/earnings ratio of 18.05. Foot Locker is expected to report earnings of 52 cents per share for the current quarter, which is a 26.4% decrease from the previously reported expectations of 71 cents per share. Foot Locker beat out expectations in three out of its last four earnings reports and has increased revenue every year for the past four years. Currently, FL stock has a 52-week low of $17.46 and 52-week high of $47.86. Foot Locker’s balance sheet currently has $1.37 in cash and $6.912 billion overall in assets.


The company currently has $3.29 billion in debt, making up the majority of the $4.509 billion Foot Locker has in liabilities. It's total equity stands at $2.403 billion. After cutting its dividend in the first quarter of 2020, Foot Locker has recently reinstated its dividend. paying $0.15 per share in the most recent quarter. Before cutting the company's dividend in the first quarter, Foot Locker consistently grew its dividend for over 17 years.

Investors will be hard pressed to find many stocks like Foot Locker in terms of being a value and dividend play. Foot Locker has a current book value of 23.02. Book value can be explained as the price per share the company would be worth if it was sold today. In other words, the book value is only 10.09 short of its current stock price. For comparison within the sporting goods sector, NIKE, Inc. (NKE) has a book value of 5.88 and stock price of $127.11. When you look at how outrageous the price/book value is for a lot of these other stocks like NKE, you begin to understand why Foot Locker can be such a solid value play showcasing a price/book value of 1.56

Post-pandemic, many companies will struggle for years to come in order to reinstate their dividend. However, Foot Locker has accomplished the impressive feat of bringing dividend payments back after only being cut for 90 days. This and Foot Locker's quick recovery in earnings are strong signs of company stability. In addition, the company continues to show ambition for growth through expansion of its brands worldwide through online sales. At this time, FL stock is showing the potential growth of 50% or more, while offering long term profits via dividends. Unlike most mall retailers who are destined for bankruptcy (or have already filed), there is a lot to be optimistic about for Foot Locker in the years to come.

 

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