Seeking Alpha
What is your profession? ×
Long/short equity, research analyst
Profile| Send Message|
( followers)

In this article, I will run you through my comparable analysis for two stocks that have been depressed for a while and thus are significantly undervalued in my opinion. The following information serves as a helpful introduction, but your further research is still warranted.


CROX shares have plunged 36.11% over the past 12 months primarily driven by the overall equity market weakness and the lowered earnings guidance. At $15.85 per share, the stock trades at 5.8x the NTM EBITDA and 10.3x the NTM EPS. Analysts expect a solid growth ahead with revenues, EBITDA, and EPS projected to grow at a 2-year CAGR of 15.9%, 20.3%, and 18.6% over the current and next fiscal years. Taking those into perspective, CROX is trading at a PEG of just 0.7x, lower than its peer group average of 1.1x (see below). The table below shows my comparative analysis for major US shoe makers and retailers.

Compared to its peers, CROX has absolute advantages in both the growth and profitability measures. The firm is fairly leveraged and other liquidity ratios such as current, quick, and interest coverage ratios suggest the firm has ample liquidity and strong capability to service the debt. CROX only underperforms the peers in FCF margin. As such, it would make sense for the stock to trade at a roughly 10% premium to the average peer multiples. However, the current market price of $15.85 requires a 25% discount based on the relative valuation model shown below, implying that the market is not giving enough credits for CROX's solid financial performance. In addition, it appears that there has been a technical support at around $14 to $15 since October 2011.

(click to enlarge)

(click to enlarge)

Vera Bradley (NASDAQ:VRA)

VRA shares have declined 40.76% over the past 12 months. At the current price of $22.44, the stock is trading at 6.7x the NTM EBITDA and 12.8x the NTM EPS. Revenues, EBITDA, and EPS are expected to experience a solid growth at a 2-year CAGR of 15.9%, 19.6%, and 18.9% over the current and next fiscal years. As such, the stock trades at a PEG of 0.6x, the lowest among the peer group (see below). Based on the comparable analysis which incorporates major fashion accessories retailers, VRA outperforms its peers in many of the profitability, growth, and liquidity ratios, and hence the firm's valuation should warrant a premium relative to the group. To justify the current market price of $22.44, an unrealistic valuation discount of 11% is actually required by the model shown below.

(click to enlarge)

The bottom line is that these 2 stocks deserving premium valuations are actually trading at large discounts to their respective peers, suggesting investors should enjoy a solid margin of safety on these investments. I have initiated a position for CROX and am going to buy into VRA, and I advise investors to do the same.

The tables are created by author, price chart is sourced from CapitalIQ, and financial data is sourced from company 10-Q, 10-K, press release, Yahoo Finance, YCharts, Wall Street Journal, Thomson One, Bloomberg, CapitalIQ and Morningstar.

Disclosure: I am long CROX.