Yahoo Finance Steven Madden Stock Gives Every Indication Of Being Significantly Overvalued
- By GF Value
The stock of Steven Madden (NAS:SHOO, 30-year Financials) is estimated to be significantly overvalued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $38.86 per share and the market cap of $3.2 billion, Steven Madden stock appears to be significantly overvalued. GF Value for Steven Madden is shown in the chart below.
Because Steven Madden is significantly overvalued, the long-term return of its stock is likely to be much lower than its future business growth, which is estimated to grow 2.75% annually over the next three to five years.
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Since investing in companies with low financial strength could result in permanent capital loss, investors must carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Steven Madden has a cash-to-debt ratio of 2.11, which ranks better than 74% of the companies in the industry of Manufacturing - Apparel & Accessories. Based on this, GuruFocus ranks Steven Madden's financial strength as 8 out of 10, suggesting strong balance sheet. This is the debt and cash of Steven Madden over the past years:
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Steven Madden has been profitable 9 years over the past 10 years. During the past 12 months, the company had revenues of $1.2 billion and earnings of $0.25 a share. Its operating margin of 7.89% better than 74% of the companies in the industry of Manufacturing - Apparel & Accessories. Overall, GuruFocus ranks Steven Madden's profitability as fair. This is the revenue and net income of Steven Madden over the past years:
One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Steven Madden is -5.4%, which ranks in the middle range of the companies in the industry of Manufacturing - Apparel & Accessories. The 3-year average EBITDA growth is -27.3%, which ranks worse than 83% of the companies in the industry of Manufacturing - Apparel & Accessories.
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Steven Madden's ROIC was 13.32, while its WACC came in at 9.58. The historical ROIC vs WACC comparison of Steven Madden is shown below:
Overall, the stock of Steven Madden (NAS:SHOO, 30-year Financials) gives every indication of being significantly overvalued. The company's financial condition is strong and its profitability is fair. Its growth ranks worse than 83% of the companies in the industry of Manufacturing - Apparel & Accessories. To learn more about Steven Madden stock, you can check out its 30-year Financials here.
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This article first appeared on GuruFocus.
