Designer Brands announced a three-year plan this spring and it looks it holds to it
Designer Brands Inc. is a US-based company, belongs to the Services sector and Apparel Stores industry. It has a market capitalization of $1.28B.
Designer Brands became the new name for DSW Inc.from May this year. At that time they announced they will add more other designers’ shoes and accessories. The company began trading under a new ticker, DBI, on the New York Stock Exchange on April 2.
Let’s take a look at its potential as an investment. Actually, we’ll analyze its Return On Capital Employed (ROCE), because that will give us a sense of the quality of the business.
ROCE will show the ‘return’ a company generates from its capital. When you see a company with higher ROCE it is a sign that you are dealing with a business with better quality.
Here is the formula:
Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets – Current Liabilities)
For Designer Brands based on data for the first eight months this year, it is calculated
0.084 = $160m ÷ ($2.6b – US$649m) or 8,4%
Is it good or bad for Designers Brands?
ROCE is helpful to see relations between related companies in the same industry. If we compare its ROCE, for example, with returns on bonds, we can see that this result wasn’t excellent. Designer Brands’s ROCE was average. And investors may find better opportunities in some other investment, right?
ROCE of 8,4% is almost double less than what the company had 3 years ago when it was 15%. What does it mean? Well, several reasons can be in the play but it is obvious that the company has some problems.
When you employ ROCE as a metric one thing you have to keep in your mind. It is a helpful tool, but it is not without disadvantages. You have to be cautious when examining the ROCE of different companies because there is no two or more companies that are precisely similar.
ROCE isn’t necessarily a good metric due to the nature of the business. This kind of business usually has several sales peeks over the year but also the lower sales-rate periods. After the announcement of changing the name, Designer Brands’ revenue is constantly increasing.
But what we can see is the Designer Brands has total liabilities of $649m and total assets of US$2.6b. So, its liabilities are approximately 25% of its assets which is a reasonable level and has a modest effect on ROCE.
Designer Brands (DBI) is possible a good long-term investment.
The current price might go up to $20 in the next three months with a possible profit of up to 70% in 2 years.
This stock has a strong buy signal since the short-term moving average is above the long-term moving average. It looks that further gains are very possible. But this stock is a risky one. It can move 3.40% between the high and low prices over one day as the historical data shows but last week’s average daily volatility was 3,37% which is medium.
If you are trading this stock maybe you should consider setting the stop-loss limit at -5,60%. It looks that this stock is currently well priced, it isn’t oversold and not overbought but the stock may be undervalued. That gives the space to raise more.
Designer Brands (DBI) is a stock many investors are following right now. The stock forward P/E ratio is 7.76. Its industry’s average forward P/E is 10.72. Over the past 12 months, the highest forward P/E ratio was15.30 and the lowest was 6.84, which lead us to a median of 11.14.
The price has been changed in four past weeks for 5.13% and for the last three months 18.80%. Considering the possibilities of its earnings, DBI stands out as one of the market’s hottest value stocks right now.
What is Designer Brands?
Designer Brands is one of the largest designers, producers, and retailers of footwear and accessories in the USA.
Under the name, DSW (Designer Shoe Warehouse) the first store opened in 1991 in Dublin, Ohio. Today, DSW holds more than 500 stores in 44 states. Also, there is the Affiliated Business Group with almost 290 leased units for retailers, such as Stein Mart.
The company also operates in Canada, in collaboration with The Shoe Company and Shoe Warehouse trough 150 locations.
In 2018, Designer Brands acquired Camuto Group, best known for the Vince Camuto® brand and the Jessica Simpson® and Lucky Brand®. This partnership provides Designer Brands to be one of the largest footwear companies in North America. It opened global capabilities in product design, development, and production. The company seems to be moving to a long-term strategy for growth and relevance with customers.
Since 2005, the company is traded on the NYSE under the ticker symbol DBI.