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Citi Trends: The Management Of This Company Deserves A Reward In The Form Of A Higher Valuation

Apr. 13, 2018 8:39 AM ETCiti Trends, Inc. (CTRN)
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Baptista Research


  • Citi Trends is an American retail chain operating in the low-priced segment.
  • The management's strategy of focusing on increasing the sales of the existing stores through better merchandising has shown excellent results over the past year.
  • The company’s financials are rock-solid and the level of free cash is good enough for it to be a leveraged buyout target.
  • Our evaluation of the company’s fundamentals and our valuation indicates that it could be an excellent buy for investors with a 1-3 year investment horizon.

The management of Citi Trends, Inc. (NASDAQ:CTRN) has adopted a relatively unconventional path in order to grow its revenues. Instead of aggressively expanding the number of outlets across the country, they decided to work on improving the core of the business - the merchandise. It was a tricky decision given the fact that the company has excellent cash reserves and zero debt, so the store expansion strategy was definitely a lucrative option.

However, the management's strategy has already started paying off. The comparable store sales are going up and the margins are improving. The company's strong financials coupled with the management's successful implementation of this strategy have made it an interesting bet for investors. Our evaluation indicates that CTRN could prove an excellent investment for a horizon of one to three years.

Company Overview

CTRN is an American retail chain that offers clothing, accessories, home products, and a vast variety of products for men, women, and children. Its product portfolio includes books, toys, electronics, jewelry, sportswear, footwear, and so on. It is known to be a relatively low-priced retailer and is known to offer heavy discounts, catering to the price-sensitive segments of the population. The company generates most of its sales through its brick-and-mortar outlets, but it also has a shopping website. Its headquarters are located in Savannah, Georgia.

The Management's Merchandising Efforts Are Paying Off

A few years back, CTRN's management was finding it difficult to achieve its performance targets. The company's new merchandise offerings were not living up to the expectations and there were issues related to the timing of apparel launches and so on. It was then that the management of CTRN decided to create a new strategy involving a more focused approach towards merchandising.

The company improved the quality of its merchandise and also worked hard

This article was written by

Baptista Research profile picture
Baptista Research is a boutique financial advisory firm specializing in research and valuation of listed companies. It is a proprietary firm owned and managed by Ishan Majumdar, a qualified Chartered Accountant who holds a Master’s degree in Management from HEC Paris (Grande Ecole). Ishan has over 6 years of work experience spread across investment banks, financial advisory firms, investment funds, and other corporates. This experience was acquired across many different geographies such as France, Spain, India, and so on. He was a part of the LBO Financing team at BNP Paribas where he worked on deals with a combined Enterprise Value of over $1 billion. He has also worked in Mergers and Acquisitions with Credit Agricole CIB and Corporate Strategy with Groupe Danone SA. Over the years, Ishan has developed a strong specialization in corporate valuations, strategy and financial analysis. At Baptista Research, our research focuses on providing long as well as short recommendations for stocks and ADRs available for US-based investors. We track undervalued/ overvalued companies and provide our recommendations based on a strictly fundamentals-focused approach. Our research is largely focused on the midcap and small-cap segments. Our analysis revolves around the projection of earnings of companies in attractive sectors based on industry trends. We follow the discounted cash flow (DCF) and the trading and transaction multiples approach for our valuation.  Follow us on Twitter @baptistaresearc.If you want us to work on a valuation assignment, feel free to mail Ishan on ishan.majumdar@hec.edu

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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