The opportunity to invest in a fundamentally sound stock with solid growth prospects at a discounted price is hard to resist, isn’t it? Macy’s (M) meets all the criteria. So, it could be worth investing in the stock and holding it forever. Read on to learn our view.
Growth stocks were severely hit since the beginning of the year due to the Fed’s aggressive interest rate hikes. However, the massive market sell-off has made value stocks attractive to investors.
Value stocks are known to perform well in a high-inflationary environment. Fundamentally sound stock Macy’s, Inc. (M) is currently trading at a discount to its peers and holds solid growth prospects.
This omnichannel retailer’s EPS grew at a CAGR of 13.9% over the past three years. Its EBITDA grew at a CAGR of 14% over the past three years. In addition, its net income grew at a CAGR of 13.4% over the past three years.
In terms of forward EV/EBITDA, M’s 3.96x is 56.8% lower than the 9.18x industry average. Its forward P/S of 0.22x is 78.1% lower than the 0.98x industry average. Also, the stock’s 5.81x forward EV/EBIT is 53.1% lower than the 12.42x industry average.
M’s stock has gained 14.4% in price over the past month, while it has lost 1.4% over the past year to close the last trading session at $19.53.
Here’s what could influence the performance of M in the upcoming quarters:
M’s net sales increased 13.6% year-over-year to $5.34 billion for the first quarter ended April 30, 2022. The company’s adjusted EBITDA increased 44.6% year-over-year to $684 million. Also, its adjusted income increased 150% year-over-year to $315 million. In addition, its adjusted EPS came in at $1.08, representing an increase of 176.9% year-over-year.
In terms of trailing-12-month gross profit margin, M’s 41.08% is 12.4% higher than the 36.53% industry average. Likewise, its 12.11% trailing-12-month EBITDA margin is 5.1% higher than the industry average of 11.52%. Furthermore, the stock’s trailing-12-month asset turnover ratio came in at 1.48%, compared to the industry average of 1.03%.
POWR Ratings Show Promise
M has an overall rating of B, equating to a Buy in our POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.
Our proprietary rating system also evaluates each stock based on eight distinct categories. M has an A grade for Value, in sync with its discounted valuation.
It has an A grade for Quality, consistent with its higher-than-industry profitability.
M is a no-brainer value pick to buy and hold for the long term due to its robust financials, discounted valuation, and high profitability.
How Does Macy’s, Inc. (M) Stack Up Against its Peers?
M has an overall POWR Rating of B, equating to a Buy rating. Check out these other stocks within the Fashion & Luxury industry with an A (Strong Buy) or B (Buy) rating: J.Jill, Inc. (JILL), Hugo Boss AG (BOSSY), and Chico’s FAS, Inc. (CHS).
M shares were trading at $19.60 per share on Friday morning, up $0.07 (+0.36%). Year-to-date, M has declined -24.07%, versus a -10.42% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.