Why Farfetch Stock May Be a Solid Bet for Growth Investors

FTCH sports a cheap valuation and relatively stable business fundamentals

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Luxury fashion e-tailer Farfetch Ltd (NYSE:FTCH) announced a $200 million common equity minority investment in Neiman Marcus Group late last month. In addition, the two companies negotiated a commercial agreement whereby Farfetch Platform Solutions will re-platform the Bergdorf Goodman website, as well as its mobile application. Still, FTCH was last seen down 1.8% to trade at $9.73.

The equity has struggled of late. In fact, shares keep running into a ceiling at the $10 level, which coincides with overhead pressure from the 40-day moving average. The security is fresh off a May 24, two-year low of $6.53, and carries a 70.6% year-to-date deficit.

FTCH 40 Day

Analysts remain overwhelmingly bullish on Farfetch stock, with all but one of the 12 in coverage rating it a "buy" or better, while the 12-month consensus target price of $20.22 is a 105.1% premium to current levels. Meanwhile, short sellers are piling on, with short interest up 11.2% in the most recent reporting period, and the 22.62 million shares sold short making up 7.1% of FTCH's available float.

Farfetch stock now trades at a price-sales ratio of 1.66, which is an attractive value given the fashion company’s top-line growth rate. For 2021, FTCH managed 35% annual sales growth, reporting $2.26 billion in revenues. The retailer has also increased revenues by 275% since 2018, and is expected to finish 2022 with another 11.7% jump in revenues. Plus, estimates have the company generating $3.13 billion in revenue for 2023, which would point to 24.4% growth.

FTCH remains unprofitable, though, and is expected to end 2022 with losses of 94 cents per share. However, the retailer's balance sheet provides some security, as the business looks to improve on the bottom line. Farfetch currently  holds $1.36 billion in cash, and $730.31 million in total debt. Overall, the security offers a promising option for growth investors, due to its cheap valuation and relatively stable business fundamentals.

 

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