That’s the case this week with household-name retailer Target (NYSE: TGT).

To get Marc’s take on Target’s dividend, click here.

And to get Anthony’s take on its current valuation, keep reading below.

– James Ogletree, Senior Managing Editor

There’s a strange thing that happens when you become a parent. You start caring about stores you once walked past without a second thought. You know which checkout line is the fastest. You know where everything is. And you know that if you run in for toothpaste, you’ll somehow walk out with a cart full of things you didn’t plan on buying.

That store for many is Target (NYSE: TGT). It’s part of everyday life for millions of families.

But the market doesn’t give out points for mere familiarity. Since early 2024, Target’s stock has slid from above $175 to around $90.

That’s a big drop for a company most of us think of as rock-steady. So the real question is whether this is just a rough patch or a sign of something deeper.

Target reaches nearly 2,000 communities and has become a kind of modern general store. Its same-day pickup and delivery options have turned into a real draw, especially for busy households.

But even a strong brand can’t dodge a strained consumer. Shoppers have tightened up. Traffic is down. Margins are thinner than anyone would like.

The latest quarter reflects that mood. Net sales slipped 1.5% year over year to $25.3 billion. Comparable sales were down 2.7% – mostly because in-store traffic fell – but digital sales grew a bit. Earnings dropped from $1.85 to $1.51 per share, and operating income slid almost 19%.

Still, Target kept returning money to shareholders and now expects full-year earnings between $7.70 and $8.70.

It’s not a disaster. It’s a company pushing through a slow season in the consumer cycle.

When you strip things down to the basics – cash, assets, and consistency – the picture looks clearer.

Target’s enterprise value-to-net asset value ratio sits at 3.74, almost identical to the 3.82 market average. You’re not getting a bargain, but you’re not paying up either.

Where Target still proves itself is in cash generation. Its 6.03% free cash flow-to-NAV rate towers over the 1.12% average. Even in a tough stretch, the company throws off real cash.

Over the last 12 quarters, it grew its free cash flow as often as the typical company in our database.

As you’ve seen, shares have drifted lower for nearly two years and now sit near 2020 levels. Moves like this can tempt bargain hunters, but only when the business is turning a corner.

Target isn’t there yet, honestly. Sales remain soft, margins are still tight, and management is bracing investors for another cautious quarter.

Still, if you shop there often, you know Target hasn’t lost its place in American life.

Good companies sometimes move sideways before they move forward. That’s part of the rhythm of retail. And right now, the market seems to have Target priced about right.

The Value Meter rates Target as “Appropriately Valued.”

What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.

The post Target: This Iconic Retail Stock Continues to Miss the Mark appeared first on Wealthy Retirement.

Fast-forward to 2025, and something surprising is happening: The company is quietly becoming a cash flow machine again.

When I see an old-school retailer generating real profits in a brutally competitive market, my ears perk up. That kind of turnaround – if it sticks – can make patient investors a lot of money.

Gap is the largest specialty apparel company in the U.S., owning Old Navy, Gap, Banana Republic, and Athleta. After years of uneven execution for the company, new leadership has spent two years tightening costs, refreshing brand identities, and modernizing supply chains.

The second quarter of fiscal 2025 showed that the plan is starting to click. Net sales held steady at $3.7 billion, with comparable sales up 1% year over year – the company’s sixth straight quarter of positive comps. Earnings per share rose 6% to $0.57, and operating margin came in at 7.8%.

Cash and equivalents hit $2.4 billion – the highest level in 15 years – and the company returned $144 million to shareholders through dividends and buybacks.

The Old Navy and Gap brands both posted gains, while Banana Republic showed early traction in its premium repositioning. Athleta remains a sore spot but has a new CEO from Nike to lead its reset.

Gross margin was 41.2%, down from 42.6% last year due to the lapping of last year’s credit-card benefit and tariff costs. Online sales rose 3% and now make up 34% of total revenue. Inventory climbed 9%, mostly from accelerated receipts ahead of new tariffs.

Management reaffirmed full-year guidance of 1% to 2% sales growth and an operating margin of 6.7% to 7%.

For a mature retailer fighting tariffs and fickle consumers, those are respectable numbers.

Let’s run Gap through The Value Meter and see what’s really happening beneath the surface.

Gap’s enterprise value compared with its net asset value sits at about 3.4, a touch cheaper than the market’s 3.8 average. That means investors are paying less for each dollar of assets than they would for a typical peer.

At the same time, the company is converting those assets into cash with unusual efficiency. Quarterly free cash flow now equals nearly 7% of Gap’s net asset value – six times higher than the broader market average.

What makes this more convincing is the consistency. Nearly half of the past dozen quarters showed growth in free cash flow, roughly matching the average company in our universe. That may sound ordinary, but in retail, ordinary stability can be a rare advantage.

Since surging 70% in a month at the end of 2023, the stock has seen some big swings, bouncing back and forth between $17 and $29. It currently sits right around the midpoint of that range.

Gap isn’t suddenly a growth rocket, and tariffs or shifting fashion trends could easily knock it off balance for a while. But right now, the company is quietly producing real cash, paying its bills, rewarding shareholders, and trading for less than it probably should.

That’s a setup long-term investors don’t see often in this sector.

The Value Meter rates Gap as “Slightly Undervalued.”

What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.

The post Gap: A Comeback Story That’s Starting to Cash In appeared first on Wealthy Retirement.

When I was growing up, it wasn’t just a store – it was the place my family went for back-to-school shopping, for new dress shirts before church, and for the Thanksgiving parade on TV. Even today, I find myself browsing its racks more often than I care to admit.

It’s one of those rare retailers that still feels familiar, even as the world of shopping has shifted online.

But sentiment and nostalgia don’t keep a business alive. Numbers do. And as I noted when I evaluated the stock last November, Macy’s has spent the past few years trying to prove that department stores aren’t relics of the past.

Macy’s isn’t just the red-star brand we all know. It’s a three-nameplate company, with Macy’s, Bloomingdale’s, and Bluemercury under its roof. Together, they span everything from affordable apparel to luxury handbags to high-end skincare.

Management’s “Bold New Chapter” strategy is focused on trimming underperforming stores, reinvesting in digital, and giving prime real estate a facelift under the “Reimagine 125” program. The company’s goal is to modernize the core Macy’s fleet while leaning into higher-growth banners like Bloomingdale’s and Bluemercury.

The second quarter of 2025 brought some progress. Net sales came in at $4.8 billion, topping guidance, with comparable sales up 0.8% at company-owned stores and 1.9% including licensed and marketplace sales.

Bloomingdale’s continues to shine, posting 3.6% comparable sales growth on an owned basis and 5.7% including licensed and marketplace sales, marking its fourth straight quarter of gains. Bluemercury notched its 18th consecutive quarter of growth at 1.2%. Even the 125 “reimagined” Macy’s stores managed 1.1% comparable owned growth, outpacing the broader chain.

The company’s earnings were mixed. Adjusted earnings per share came in at $0.41, which beat guidance but was down from $0.53 last year. Gross margins slipped 80 basis points to 39.7% due to markdowns and tariffs. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) landed at $393 million and 7.9% of revenue, both of which were down from a year ago.

Cash flow was light. For the first half of 2025, Macy’s generated $255 million in operating cash flow, but after capital expenditures and software investments, free cash flow was -$13 million. That’s a worrying sign for a company that needs cash to both reinvent itself and pay shareholders.

Speaking of which, Macy’s did still return capital. The board declared a dividend of $0.1824 per share and bought back $50 million worth of stock last quarter, bringing its total to $151 million worth repurchased year to date. The balance sheet also looks healthier after the company trimmed long-term debt by about $340 million and pushed major maturities out to 2030.

When we run Macy’s through The Value Meter, the picture continues to look nuanced.

Macy’s EV/NAV ratio comes in at 2.04, far cheaper than the universe average of 6.53. In plain English, you’re paying less than one-third the “going rate” for Macy’s assets compared with the average company. That makes it look attractively priced from a balance sheet perspective.

Despite a choppy year for retail, Macy’s is still generating cash. Its FCF/NAV sits at 4.33%, compared with a universe average of -2.04%. That means Macy’s is producing real cash relative to its resources, while many peers are burning through theirs. That efficiency gives it some breathing room to invest, buy back stock, or pay dividends.

The weaker spot in Macy’s profile is consistency. Over the past three years, it grew its quarterly free cash flow just 36.4% of the time, below the universe average of 46.2%. Put differently, Macy’s has produced positive quarters – but not as steadily as investors would like. Retail cycles, tariffs, and markdowns still make this cash machine sputter from time to time.

Overall, Macy’s balances out. Its cheap valuation offsets its uneven cash flow history.

But over the past year, shares have been on a roller coaster.

After peaking above $20 early in 2024 and at over $17 late in the year, the stock tumbled below $10 in April before staging a modest recovery. Now, after the sharp post-earnings spike, Macy’s trades near $17 – still well off its highs but up more than 40% from its spring lows.

Macy’s is doing many of the right things: closing underperforming stores, refreshing prime locations, and leaning into growth banners like Bloomingdale’s and Bluemercury. But the challenges are just as clear.

The Value Meter rates Macy’s as “Appropriately Valued.”

What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.

The post Macy’s: An Iconic Retailer That’s Still Going Strong appeared first on Wealthy Retirement.

While the gravy train may have stopped for Buchanan’s girlfriend, Kohl’s investors are hoping to continue getting the company’s solid dividend.

But can interim CEO Michael Bender sustain the big 7.6% yield?

The stock has been falling since 2018, which is why the dividend yield is so high.

Over the past few years, Kohl’s free cash flow has gone up and down almost as much as a Knicks fan’s emotions while watching the NBA playoffs.

In fiscal 2024, which ended in February, free cash flow dropped from $591 million to $182 million. In 2022, it was negative. Free cash flow for the current fiscal year is forecast to rise to $393 million.

In fiscal 2024, Kohl’s paid shareholders $222 million in dividends. That came out to a 122% payout ratio, which is way too high. In other words, it paid shareholders $1.22 for every $1 in free cash flow. That is not sustainable.

However, because free cash flow is forecast to rise to $393 million this year, the payout ratio is projected to drop to a more comfortable 61%, as the total dividend payout is expected to rise only slightly to $238 million.

As for Kohl’s dividend history, it is like former CEO Ashley Buchanan’s judgment.

Not good.

Kohl’s slashed its dividend from $0.50 per share to $0.125 earlier this year. During the pandemic, it eliminated the payout entirely for three quarters. When it brought it back, the dividend was 65% lower than before it was suspended.

So Kohl’s dividend safety rating has a lot of things going against it: The company’s free cash flow fell in the most recent fiscal year, its payout ratio is sky-high, and it is a frequent dividend cutter.

Kohl’s is facing tariffs and a new CEO taking over after a scandal. With all the marks against its record, its dividend cannot be considered safe.

Dividend Safety Rating: F

What stock’s dividend safety would you like me to analyze next? Leave the ticker in the comments section.

You can also take a look to see whether we’ve written about your favorite stock recently. Just click on the word “Search” at the top right part of the Wealthy Retirement homepage, type in the company name, and hit “Enter.”

Also, keep in mind that Safety Net can analyze only individual stocks, not exchange-traded funds, mutual funds, or closed-end funds.

The post Can Kohl’s 7% Yield Survive a CEO Scandal? appeared first on Wealthy Retirement.

The stock’s journey over the past year tells an interesting tale. After peaking near $245 in late 2021, shares tumbled about 60% to around $100 by the fall of 2023 as consumers pulled back on discretionary spending.

More recently, though, the stock has rebounded, reflecting growing investor confidence in retailers.

Let’s examine whether Target represents a good value at current prices by looking at two key metrics.

First, let’s consider the company’s enterprise value relative to its net assets (EV/NAV), which currently sits at 5.39. That’s notably lower than the average of 7.33 among companies with positive net assets. That means you’re paying less for each dollar of Target’s assets than you would for the typical company.

But value investing isn’t just about buying cheap assets – it’s about finding companies that can efficiently turn those assets into cash.

Target has generated positive free cash flow in each of the past four quarters, with its quarterly free cash flow averaging 8.45% of its net assets. That’s slightly better than the 7.9% average among companies with similar cash flow patterns, telling us Target is more efficient than its peers at converting assets into cash.

The company’s third quarter results reinforce both its strengths and its challenges. While guest traffic grew 2.4% and digital sales surged 10.8% during the quarter, operating income fell 11.2% to $1.2 billion due to higher costs. Beauty remained a bright spot with more than 6% growth, while food and essentials saw modest gains.

Management’s outlook appears cautiously optimistic. They expect flat comparable sales in the fourth quarter but maintain their full-year adjusted earnings per share guidance of $8.30 to $8.90. Meanwhile, the company continues to make operational improvements, with its average delivery time now nearly a day faster than it was last year.

When we weigh all these factors, Target’s current valuation looks appropriate. The stock isn’t expensive enough to avoid, but it’s not cheap enough to make it a compelling buy. At $130 per share, you’re paying a fair price for a well-run retailer that’s generating $25.7 billion in quarterly revenue and has a clear strategy for navigating today’s challenging retail environment.

The Value Meter rates Target as “Appropriately Valued.”

What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.

The post Is It Time to Take Aim at Target Stock? appeared first on Wealthy Retirement.

In fact, Walgreens has by far the largest dividend yield in the S&P 500. Even if the share price were to stay flat, you would net yourself a double-digit annual return without having to do anything.

However, as is the case with many high dividend yields, this one may be too good to be true.

Last year, Chief Income Strategist Marc Lichtenfeld reviewed Walgreens and gave it a “D” for dividend safety, meaning there was a high probability of a dividend cut.

He cited Walgreens’ drop in free cash flow in 2022 and 2023 as the main culprit.

He also noted that the company’s payout ratio was over 1,200%. This means that the company’s total dividend payout was 12 times more than the amount of cash that it brought in.

The only silver lining was that the company was expected to bounce back after a rough 2023 and grow its free cash flow in 2024.

Today, since we’re nearing the end of 2024, I thought it’d be a good time to see whether the company has turned things around. (Also, thank you to Wealthy Retirement reader Travis, who commented on a recent article to ask us to evaluate Walgreens’ dividend. If you have a stock you’d like us to take a look at, leave a comment below.)

I want to answer two questions today: Did Marc’s “D” grade accurately assess Walgreens’ dividend safety, and what is the risk of a cut this year?

First things first, let’s see whether Marc was right in predicting a dividend cut.

When Marc wrote his article last year, Walgreens’ dividend was at $0.48 a share.

Lo and behold, less than three months later, the company slashed the dividend nearly in half to $0.25 a share.

I call that a win for Safety Net.

That reduction also bumps this year’s grade down a level… but there are plenty of other factors that could make up for it, including free cash flow.

Last year’s free cash flow estimates showed that Walgreens had a chance to bounce back, but as we can see in the graph below, that did not happen.

All I can say is “Yikes!” This year’s free cash flow was a catastrophe.

For 2024, Walgreens’ free cash flow was -$363 million. (Its 2024 fiscal year ended in August.) Even if the company were to right the ship in 2025, estimates for next year are still in the negative at -$32 million.

Finally, we must address the company’s dividend payout ratio.

Our normal calculation won’t work because of the negative free cash flow figure.

Walgreens’ 1,200% payout ratio in 2023 was bad – and just a bit higher than our threshold of 75%. Since the payout ratio is now negative, it’s even worse than bad.

The company is continuing to pay out dividends while it’s hundreds of millions of dollars in the hole. That’s the definition of unsustainable.

If I could bump the stock down more than one grade, I would, but I have to follow the rules. So I’ll only knock it down one notch.

This year, Walgreens had negative growth, boasted an awful dividend payout ratio, and cut its dividend – and it probably slashed my tires for good measure.

I can confidently say that this dividend is very unsafe.

Dividend Safety Rating: F

What stock’s dividend safety would you like us to analyze next? Leave the ticker in the comments section.

You can also take a look to see whether we’ve written about your favorite stock recently. Just click on the word “Search” at the top right part of the Wealthy Retirement homepage, type in the company name, and hit “Enter.”

Also, keep in mind that Safety Net can analyze only individual stocks, not exchange-traded funds, mutual funds, or closed-end funds.

The post Walgreens’ 11% Yield Could Be a Tough Pill to Swallow appeared first on Wealthy Retirement.

The department store giant, which operates Macy’s, Bloomingdale’s, and Bluemercury stores nationwide, has seen its stock price bounce between $10 and $20 over the past year as it’s worked to reinvent itself for the modern shopper.

Let’s dig into the numbers to see whether (with apologies to Bob Barker) the price is right.

At first glance, Macy’s might look cheap – much like the clothing rack in its stores’ “Last Act” clearance section. Its enterprise value-to-net asset value (EV/NAV) ratio is 2.27, well below the average of 6.35 for companies with positive net assets. Put another way, you could theoretically buy all of Macy’s assets at a significant discount to what similar companies are worth.

However, there’s a reason for the steep discount: The company has posted negative free cash flow in three of the past four quarters.

When it does generate cash, though, it performs better than you might expect. Over the past four quarters, its quarterly free cash flow has averaged 4.01% of its net assets, compared with -9.05% for companies with similar cash flow patterns.

The numbers from Macy’s most recent quarter help add context to these figures. While sales dropped 3.8% to $4.9 billion, the company managed to expand its gross margin to 40.5%, up from 38.1% last year. That tells us that even though it’s selling less overall, it’s making more money on what it sells.

What’s driving this improvement? The company’s “Bold New Chapter” strategy seems to be gaining traction. Its “First 50” locations – test stores with enhanced staffing and merchandising – posted their second straight positive quarter, with comparable sales rising 1%. This success led management to expand some of these initiatives to 100 more stores.

Meanwhile, Macy’s luxury segments are holding steady, with Bloomingdale’s sales down just 0.2% year over year and Bluemercury’s actually growing 1.7%.

The company is also smartly monetizing underperforming locations, as it expects to close about 55 stores this year. This isn’t just cost-cutting – it’s value creation. These locations may be weak performers as stores, but they’re valuable real estate assets. Management noted strong demand from developers for these properties, and they’re only executing deals that would build shareholder value. In fact, asset sales totaled $36 million in Q2 alone.

Lastly, though Macy’s carries $3 billion in long-term debt on its balance sheet, it has maintained a healthy cash position of $646 million.

So what’s the bottom line?

While Macy’s low EV/NAV ratio might make it look like a bargain, the company’s mixed cash flow performance and ongoing transformation suggest that its current valuation is appropriate.

It’s making the right moves with its store strategy and maintaining solid margins, but it’s also still navigating a challenging retail environment.

The stock isn’t cheap enough to be a clear bargain, but it’s not expensive either – especially given the company’s still-solid market position and the progress it’s making on its turnaround strategy.

Sometimes the market gets it right, and this appears to be one of those times.

For now, The Value Meter rates Macy’s as “Appropriately Valued.”

What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.

The post Macy’s Is Making Progress… Is It Back in “Buy” Territory? appeared first on Wealthy Retirement.

Looking at its stock chart, we can see it’s been on quite a roller coaster ride over the past year. Since hitting a low of around $270 in October 2023, the stock has surged dramatically, recently touching new all-time highs above $410.

This impressive 50% rally in less than a year has many investors wondering whether the stock has gotten ahead of itself or still has room to run. Let’s run it through The Value Meter to find out.

First, we’ll look at Home Depot’s enterprise value-to-net asset value (EV/NAV) ratio. This tells us how much investors are willing to pay for the company’s assets. Home Depot’s EV/NAV sits at a whopping 151.21, which is way, way higher than the average of 6.35 for similar companies.

However, we also need to look at how well Home Depot turns its assets into cash. This is where things get interesting. Over the past year, Home Depot’s free cash flow – the money it had left over after paying for operations and investments – averaged an incredible 261.51% of its net assets. That’s more than 33 times higher than the 7.83% average for companies with similarly steady cash flow.

In simpler terms, Home Depot is a cash-generating machine. Relative to other businesses, it’s squeezing an enormous amount of money out of its assets.

In fact, the company’s ability to generate cash is so far above average that it more than makes up for the high asset valuation – and its recent performance backs this up. In the second quarter of 2024, Home Depot reported sales of $43.2 billion, with a healthy 15.1% operating margin.

The company is also shareholder-friendly, having recently declared a $2.25 per share dividend, which comes out to a 2.2% yield. This marks the 150th quarter in a row that Home Depot has paid a cash dividend, showing its commitment to returning value to investors.

Home Depot is facing some challenges, however. The company noted that higher interest rates and economic uncertainty are putting pressure on consumer demand for home improvement projects. This led management to lower their sales forecast for the year.

But despite these headwinds, Home Depot still looks like an attractive opportunity. The stock’s current valuation suggests that the market hasn’t fully priced in the company’s incredible cash-generating power or its clear market dominance.

The Value Meter rates this one “Slightly Undervalued,” although it’s fairly close to “Extremely Undervalued” territory.

What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.

The post Home Depot Hammers the Competition… but Is It a “Buy”? appeared first on Wealthy Retirement.

So today, I’ve invited him to share some of his findings on how seasonal trends affect certain sectors.

I’m sure you’ll find them as informative as I did!

– James Ogletree, Managing Editor

There’s a season for everything… especially stocks.

Seasonality and cyclicality in trading and investing are not merely trends or passing fads…

They are the heartbeat of the markets, pulsing with predictable opportunities for smart investors.

Cyclical investing reflects the ebb and flow of economic cycles. Investors who understand these cycles rotate into sectors poised for growth during specific phases. That gives them an opportunity to maximize their portfolio returns over time.

As a 40-year market veteran, I’ve witnessed firsthand how these patterns can unlock substantial profits.

You can find these seasonal surges and cyclical upturns in many sectors.

Nature’s Rhythm

Seasonality is huge in the commodities sector.

The prices of certain commodities correlate with specific times of the year. Those prices are driven by factors such as weather patterns, agricultural planting and harvesting cycles, and global demand shifts.

For instance, corn and soybean prices are influenced by planting and harvest seasons.

As spring approaches, farmers prepare their fields and plant crops, which in turn drives up prices as demand for these commodities spikes.

Then during harvest time in the fall, increased supply can lead to temporary price dips as markets adjust.

Knowing these cycles helps traders buy and sell at the right times. (And if you’re using leveraged futures or ETF trades, including with options, you can make a lot of money.)

Energy commodities like natural gas and heating oil have obvious seasonal patterns driven by weather extremes.

Winter brings demand for heating fuels, pushing prices higher as cold snaps grip northern regions. During the summer, demand for cooling fuels like natural gas for electricity generation rises.

While commodities follow seasonal patterns closely tied to nature, other sectors have their own rhythms.

Predictable Peaks

Consumer spending shows cyclical behavior too. There are several peaks throughout the year, including…

• Easter to Memorial Day
• The Fourth of July
• Back-to-school shopping in August
• The December holiday season.

By investing in retail giants ahead of these peaks, investors can capitalize on seasonal spending trends.

The tech sector thrives on a slightly different cycle – the cycle of innovation. Companies release new products and updates at regular intervals. Investors can get in ahead of product launches or major tech events.

During periods of economic expansion, real estate and construction sectors do well as infrastructure projects gain momentum.

Cyclical investments in construction materials, homebuilders, and REITs can yield substantial returns as economic indicators point toward growth.

Even precious metals like gold and silver are not immune to seasonal influences.

Gold historically experiences a surge in demand during certain seasons in different countries around the world.

• The price of gold rallies early in the year as we approach the Chinese New Year.
• It surges on massive gold-buying in India during the Diwali holiday in late October and early November.
• It ends the year at its highest point during the Indian wedding season, when demand is high.

By following these types of economic cycles, investors are able to optimize their portfolio performance across many sectors.

But there are a few things to keep in mind…

A Cycle of Profits

Cyclical investing needs careful research, strategic timing, and a keen understanding of market dynamics.

It’s important to diversify your portfolio across commodities, sectors, and asset classes to manage the risks associated with seasonal volatility and cyclical downturns.

You need patience and discipline as well. Don’t chase short-term trends… allow the cycles to play out.

Cyclical profits are not just possible… but are just about everywhere in the markets.

As long as you know where to look.

The post Seasonal Trends: the “Heartbeat of the Markets” appeared first on Wealthy Retirement.

The stock has been on quite a roller coaster ride over the past year. It spent much of late 2023 and the first half of 2024 in a consistent uptrend, climbing from lows around $13 to a peak above $24 – an impressive 85% surge in just eight months.

However, the rally proved short-lived, with the stock suddenly plummeting over 25% to its current price near $18.

This sharp reversal raises some eyebrows. It might just reflect broader concerns about consumer spending in a potentially slowing economy… or it might point to more company-specific issues.

With the shares trading at a discount to recent highs, are they a compelling investment? Let’s run this iconic denim maker through The Value Meter to find out.

At first glance, Levi’s looks like it could be undervalued. Its enterprise value-to-net asset value (EV/NAV) ratio sits at 4.53, well below the average of 10.95 for companies with positive net assets. This suggests that you could theoretically acquire the entire business for less than half of what you’d pay for the average company.

But as I always remind you, a low EV/NAV alone doesn’t make a stock a screaming buy. We need to look at cash flow generation to get the full picture.

Levi’s has performed decently on that front, as it churned out positive free cash flow in three of the past four quarters. Its average quarterly free cash flow clocked in at 7.76% of its net assets during that span – modestly above the 7.26% average for firms with similar cash flow patterns.

The company’s second quarter results offer additional insight. Revenue grew 7.8% year over year to $1.4 billion, driven by an 8.2% increase in direct-to-consumer (DTC) sales. Gross margins also hit a record 60.5%, up from 58.7% in the second quarter of 2023.

This expansion, coupled with cost control measures, led to adjusted EBIT (earnings before interest and taxes) of $87 million, a huge improvement from $31.5 million in the same quarter a year prior.

So while Levi’s isn’t exactly printing money, it’s generating cash at a respectable clip. The company’s consistent cash generation also supports a 3% dividend yield, with a payout ratio of 36.1% of its forward earnings suggesting sustainability.

However, Levi’s is facing some challenges.

The fashion retail sector is notoriously fickle, requiring companies to constantly innovate in order to maintain market position. Additionally, lingering inflation and recession fears could pressure consumer spending on discretionary items like clothing.

The company’s brand strength and global reach provide some insulation against these risks, though, and its expansion of its DTC business (which now accounts for 47% of total revenue) should help margins as long as it’s executed well.

When we balance the company’s attractive valuation and steady cash flow against the inherent risks in its industry, the stock lands squarely in “fair value” territory.

Unsurprisingly, The Value Meter rates Levi Strauss & Co. as “Appropriately Valued.” While the stock isn’t a table-pounding bargain, it’s also not wildly overpriced.

What stock would you like me to run through The Value Meter next? Post the ticker symbol(s) in the comments section below.

The post Is Levi Strauss & Co. a Good Value After Its Sharp Decline? appeared first on Wealthy Retirement.