Table of Contents
- 1 What are the reasons to consider investing in Wolverine World Wide, Inc. despite the recent stock price decline?
- 2 Recent Performance and Market Conditions
- 3 Reasons to Consider Investing in Wolverine World Wide, Inc.
- 4 Practical Tips for Potential Investors
- 5 Conclusion
- 6 Calculation Processes
- 7 Significant Assumptions
- 8 Looking Ahead
What are the reasons to consider investing in Wolverine World Wide, Inc. despite the recent stock price decline?
Discover Why Wolverine World Wide, Inc. (NYSE:WWW) May Be a Bargain at 44% Off
Wolverine World Wide, Inc. (NYSE:WWW) is a well-known American footwear manufacturer that has been in the business for over a century. The company is best known for its iconic Wolverine brand of work boots, as well as numerous other popular shoe and apparel lines. Despite its reputable position in the market, the company’s stock has recently taken a hit, presenting a potential buying opportunity for savvy investors. In this article, we will explore why Wolverine World Wide, Inc. may be a bargain at 44% off and why it could be a worthwhile investment.
Recent Performance and Market Conditions
Wolverine World Wide, Inc. has seen its stock price decline by 44% over the past year, presenting significant value for potential investors. This decline can be attributed to a variety of factors, including overall market volatility, supply chain disruptions, and a decrease in consumer spending due to the global pandemic. However, despite these challenges, the company has continued to maintain its strong brand presence and has shown resilience in the face of adversity.
Financial Overview
When it comes to the company’s financials, Wolverine World Wide, Inc. has a solid track record of growth and profitability. The company has consistently delivered strong revenue and earnings, and its balance sheet remains healthy. Additionally, the company has a strong cash position and manageable debt levels, which provides a solid foundation for future growth and expansion.
Market Competitiveness
Wolverine World Wide, Inc. operates in a highly competitive market, with both traditional and online retailers vying for consumer attention. The company has demonstrated its ability to adapt to changing consumer preferences and market conditions, which has enabled it to maintain its competitive edge. Through its strategic partnerships and innovative marketing initiatives, the company has continued to attract a loyal customer base and drive sales.
Reasons to Consider Investing in Wolverine World Wide, Inc.
Despite the recent decline in stock price, there are several compelling reasons to consider investing in Wolverine World Wide, Inc. at its current valuation:
- Strong brand portfolio: The company’s diverse brand portfolio includes well-established names such as Merrell, Saucony, Sperry, and Hush Puppies, which have a strong global presence and resonate with consumers across different demographics.
- Robust e-commerce presence: Wolverine World Wide, Inc. has invested heavily in its e-commerce capabilities, enabling it to capitalize on the growing trend of online shopping. This has allowed the company to reach new customers and drive sales through digital channels.
- Focus on sustainability: The company has made significant strides in integrating sustainable practices into its business operations, including using eco-friendly materials and reducing its environmental footprint. This commitment to sustainability is likely to resonate with environmentally conscious consumers.
- Potential for market recovery: As the global economy begins to recover from the impacts of the pandemic, consumer spending is expected to rebound. This presents an opportunity for Wolverine World Wide, Inc. to capture pent-up demand and drive future growth.
Practical Tips for Potential Investors
For investors considering a position in Wolverine World Wide, Inc., it is important to conduct thorough due diligence and consider the following practical tips:
- Review the company’s financial reports and assess its long-term growth prospects.
- Monitor industry trends and consumer sentiment to gauge the company’s competitive positioning.
- Consider the impact of macroeconomic factors, such as interest rates and inflation, on the company’s performance.
- Diversify your investment portfolio to mitigate risk and maximize potential returns.
Conclusion
While the current stock price of Wolverine World Wide, Inc. may reflect short-term market challenges, the company’s strong brand portfolio, financial stability, and market competitiveness position it for long-term success. With a focus on sustainability and e-commerce growth, the company is well-positioned to capture opportunities in a recovering global economy. For investors seeking a potential bargain in the retail sector, Wolverine World Wide, Inc. may be worth exploring as a promising investment opportunity.
Crucial Insights
Based on a 2 Stage Free Cash Flow to Equity analysis, Wolverine World Wide is predicted to have a fair value of US$22.89.
The stock’s current share price of US$12.71 suggests that it could be undervalued by 44%.
Our fair value estimate is significantly higher, with a 59% difference compared to Wolverine World Wide’s analyst price target of US$14.43.
Wolverine World Wide, Inc. (NYSE:WWW) appears to be trading below its intrinsic value. By examining the most recent financial data, we aim to determine whether the stock is fairly valued by forecasting the future cash flows and discounting them to present value using the Discounted Cash Flow (DCF) model. Although the DCF model may seem complex, it is an essential tool for evaluating the worth of a company.
We believe that a company’s value is the present value of all the cash it will generate in the future, even though a DCF is just one of many valuation metrics and is not without flaws.
If you want to understand the rationale behind this calculation, you can delve into the details in the Simply Wall St analysis model to learn more about discounted cash flow. Now, let’s delve into our latest analysis for Wolverine World Wide.
Calculation Processes
In this analysis, we employ a two-stage DCF model that accounts for two phases of growth. The first stage reflects a period of higher growth that eventually levels off and transitions to the second phase, characterized by steady growth towards the terminal value. Our initial step involves estimating the next ten years of cash flows with analyst estimates or extrapolating previous free cash flow (FCF) when necessary. We assume that companies with decreasing free cash flow will experience a gradually slowing rate of decline, while those with increasing free cash flow will see a deceleration of their growth rate over this period. This shifting growth rate mirrors the common occurrence of slower growth in the early years compared to later years.
A DCF operates on the principle that a dollar in the future holds a lesser value than a dollar today, leading us to discount the value of future cash flows to their estimated present value. The following estimates reflect this valuation:
Projections for 10-year free cash flow (FCF)
- 2025 - US$117.9m
- 2026 – US$150.7m
- 2027 – US$151.6m
- 2028 – US$153.4m
- 2029 – US$155.8m
- 2030 – US$158.5m
- 2031 – US$161.6m
- 2032 – US$165.0m
- 2033 – US$168.6m
- 2034 - US$172.4m
- Growth Rate Estimate Source: Analyst x3, Analyst x2, Est @ 0.65%, Est @ 1.17%, Est @ 1.53%, Est @ 1.79%, Est @ 1.96%, Est @ 2.09%, Est @ 2.18%, Est @ 2.24%
- PVCF = US$935m
The next step involves calculating the Terminal Value, which encapsulates the subsequent cash flows beyond the initial ten-year period. We apply the Gordon Growth formula to compute the Terminal Value at a future annual growth rate equivalent to the 5-year average of the 10-year government bond yield of 2.4%. Discounting the terminal cash flows to today’s value at a cost of equity of 10.0% produces the following results:
Terminal Value (TV) = US$172m× (1 + 2.4%) ÷ (10.0%– 2.4%) = US$2.3b
Present Value of Terminal Value (PVTV) = US$2.3b÷ ( 1 + 10.0%)10 = US$895m
The total equity value is the summation of the present value of future cash flows, amounting to US$1.8b in this case. Dividing this figure by the total number of outstanding shares gives us the intrinsic value per share. In comparison to the existing share price of US$12.7, the company seems notably undervalued at a 44% discount to the current stock price. It’s crucial to acknowledge that the assumptions in any calculation significantly impact the valuation, so this estimate should be viewed as approximate rather than precise down to the last cent.
Significant Assumptions
In a discounted cash flow analysis, the discount rate and the actual cash flows are the most critical inputs. Part of investing involves formulating your own judgment regarding the company’s future performance. The DCF model also disregards the potential cyclicality of an industry or a company’s future capital requirements, offering an incomplete portrayal of a company’s potential performance. For Wolverine World Wide, we utilized the cost of equity as the discount rate, instead of the cost of capital (or weighted average cost of capital, WACC) that encompasses debt. With a 10.0% discount rate based on a levered beta of 1.655, we calculated the beta using the industry average beta of globally comparable companies, imposing limits between 0.8 and 2.0, which is a reasonable range for a stable business.
SWOT Analysis for Wolverine World Wide
- Strength
- Weakness
- Opportunity
- Threat
Looking Ahead
While the DCF calculation is crucial, it should not be the sole basis for evaluating a company. The DCF model serves to test specific assumptions and theories that could lead to a company being undervalued or overvalued. A slight adjustment in the terminal value growth rate can significantly alter the overall result. For Wolverine World Wide, three pertinent aspects warrant further exploration:
- Risks: We’ve identified 2 warning signs for Wolverine World Wide that should be carefully considered, with one of them raising particular concern.
- Management: Have company insiders increased their shares to capitalize on market sentiment regarding WWW’s future prospects? Our management and board analysis provides insights into CEO compensation and governance factors.
- Additional Solid Businesses: Companies with low debt, high returns on equity, and commendable past performance are integral to a strong business. Discover our interactive list of stocks with robust business fundamentals to explore other potential investment opportunities beyond your current considerations!
P.S. Simply Wall St updates its DCF calculation for every American stock daily. If you wish to ascertain the intrinsic value of any other stock, simply perform a search here.
Do you have feedback on this article? Or are you concerned about its content? Connect with us directly. Alternatively, email our editorial team at editorial-team@simplywallst.com.
This article by Simply Wall St is founded on historical data and analyst forecasts, guided by an impartial methodology. It is intended to provide commentary rather than financial advice. This article neither endorses nor opposes the purchase or sale of any stock, nor does it consider individual objectives or financial situations. We aim to deliver comprehensive analysis grounded in fundamental data, although our analysis may not necessarily account for the latest company announcements or qualitative material. Simply Wall St holds no positions in any stocks mentioned.
Do you have feedback on this article? Or are you concerned about its content? Connect with us directly. Alternatively, email our editorial team at editorial-team@simplywallst.com