G-III trades at $29.51 and has moved in lockstep with the market. Its shares have returned 7.2% over the last six months while the S&P 500 has gained 5.4%.
Is there a buying opportunity in G-III, or does it present a risk to your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Do We Think G-III Will Underperform?
We're swiping left on G-III for now. Here are three reasons why GIII doesn't excite us and a stock we'd rather own.
1. Long-Term Revenue Growth Disappoints
Examining a company’s long-term performance can provide clues about its quality. Any business can have short-term success, but a top-tier one grows for years. Over the last five years, G-III grew its sales at a weak 7.5% compounded annual growth rate. This was below our standard for the consumer discretionary sector.
2. Weak Operating Margin Could Cause Trouble
Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.
G-III’s operating margin has been trending down over the last 12 months and averaged 6.5% over the last two years. The company’s profitability was mediocre for a consumer discretionary business and shows it couldn’t pass its higher operating expenses onto its customers.
3. Cash Flow Margin Set to Decline
If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.
Over the next year, analysts predict G-III’s cash conversion will fall. Their consensus estimates imply its free cash flow margin of 8.9% for the last 12 months will decrease to 3.9%.
Final Judgment
G-III doesn’t pass our quality test. That said, the stock currently trades at 14.2× forward P/E (or $29.51 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. There are better investments elsewhere. Let us point you toward one of our top digital advertising picks.
Stocks We Would Buy Instead of G-III
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