Designer Brands may be undervalued with strong growth indicators, but the 3 analysts following the company give it an rating of hold. Their target prices range from $8.0 to $12.0 per share, for an average of $9.33. At today's price of $8.29, Designer Brands is trading -11.15% away from its average target price, suggesting there is an analyst consensus of some upside potential for the stock.
Designer Brands Inc., together with its subsidiaries, designs, manufactures, and retails footwear and accessories for women, men, and kids primarily in the United States and Canada. Based in Columbus, OH, the small-cap Consumer Discretionary company has 14,000 full time employees. Designer Brands has provided a 2.8% dividend yield over the last 12 months.
Designer Brands has a trailing twelve month P/E ratio of 3.7, compared to an average of 22.33 for the Consumer Discretionary sector. Based on its EPS guidance of 1.7, the company has a forward P/E ratio of 4.9.
The average compound growth rate of the company's historical and projected earnings per share is 6.0%. On this basis, the company's PEG ratio is 0.59. However, this growth rate is probably not sustainable. In its place we will use the broader market's estimated 5-year EPS growth rate of 6.0%, which gives us a PEG ratio of 0.59. Even with this more conservative assumption on EPS growth, the PEG ratio suggests that Designer Brands shares are underpriced.
Furthermore, the market is potentially undervaluing Designer Brands in terms of its book value because its P/B ratio is 1.22. In comparison, the sector average P/B ratio is 3.12. The company's shares are currently -55.4% below their Graham number, indicating that its shares have a margin of safety.
If analysts are giving the stock a bad rating, it's likely that they are looking beyond simple valaution metrics and attempting to forecast the company's growth potential. For example, Designer Brands has narrow margins as you can see in the financial summary below.
| 2020-01-31 | 2021-01-31 | 2022-01-31 | 2023-01-31 | |
|---|---|---|---|---|
| Revenue (MM) | $3,493 | $2,235 | $3,197 | $3,315 |
| Gross Margins | 28.6% | 13.9% | 33.4% | 32.6% |
| Operating Margins | 3.6% | -19.8% | 6.2% | 5.5% |
| Net Margins | 2.71% | -21.87% | 4.83% | 4.91% |
| Net Income (MM) | $94 | -$489 | $154 | $163 |
| Net Interest Income | -$7,355 | -$23,694 | -$32,129 | -$14,874 |
| Depreciation & Amort. | -$86,649 | -$88,026 | -$77,923 | -$81,315 |
| Earnings Per Share | $1.27 | -$6.77 | $2.0 | $2.26 |
| EPS Growth | n/a | -633.07% | 129.54% | 13.0% |
| Diluted Shares (MM) | 75 | 72 | 77 | 58 |
| Free Cash Flow (MM) | $119 | -$185 | $138 | $146 |
| Capital Expenditures (MM) | -$78 | -$31 | -$33 | -$55 |
| Net Current Assets (MM) | -$843 | -$953 | -$688 | -$787 |
| Current Ratio | 1.32 | 1.04 | 1.2 | 1.24 |
| Long Term Debt (MM) | $190 | $272 | $226 | $281 |
| Net Debt / EBITDA | 1.36 | -1.05 | 1.25 | 1.61 |
