Does Carter's Recent 15% Jump Signal a Fairly Priced Opportunity in 2025?

• Wondering if Carter's could be a hidden gem or if the recent negativity has pushed the price low enough to warrant a second look? Let’s break down what the numbers and recent events are really telling us about the company’s true value.
• The stock has had a bumpy ride lately, jumping 15.4% over the last 30 days yet still down 41.1% for the year and 33.7% over the past twelve months.
• Market watchers have highlighted Carter's involvement in industry cost-saving initiatives and a continued focus on direct-to-consumer sales. Both of these factors have shaped investor sentiment in recent weeks and created fresh debates about the company's potential for a turnaround or whether challenges still outweigh opportunities.
• Right now, Carter’s scores a 3 out of 6 on our value checks, which means there’s nuance behind the headline numbers. Let’s dig into the popular valuation methods and stay tuned because we’ll also show you a standout approach that could give you an even sharper edge.

Find out why Carter's's -33.7% return over the last year is lagging behind its peers.

Approach 1: Carter's Discounted Cash Flow (DCF) Analysis

The Discounted Cash Flow (DCF) model estimates a company’s value by projecting its future cash flows and discounting those projections back to today’s dollars. This approach is widely used for its focus on the business’s ability to generate cash over time, rather than current earnings or book value.

For Carter's, the DCF model starts with its latest annual Free Cash Flow (FCF) of $95 million. Analysts forecast that FCF will grow, reaching $118.1 million by 2026. After this point, longer-term projections are extrapolated and expected cash flows gradually stabilize over the next decade. By 2035, forecasts see FCF leveling off around $54.2 million.

When all projected cash flows are discounted back using the 2 Stage Free Cash Flow to Equity model, Carter’s estimated intrinsic value comes to about $17.58 per share. Compared to the market price, this implies the stock is roughly 80.3% overvalued according to the DCF approach.

This suggests that Carter’s shares are currently priced much higher than what its long-term cash flow outlook can justify.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Carter's may be overvalued by 80.3%. Discover 875 undervalued stocks or create your own screener to find better value opportunities.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Carter's.

Approach 2: Carter's Price vs Earnings

The Price-to-Earnings (PE) multiple is often considered the gold standard for valuing profitable companies because it directly ties the company's current share price to its bottom-line profits. For investors, this ratio quickly shows how much they're paying for each dollar of earnings, and provides a baseline for comparing companies of various sizes across industries.

What constitutes a "normal" or "fair" PE ratio varies depending on expectations for a company's future growth and the risks it faces. Higher growth companies can often command richer valuations, while those with more uncertainty or slower growth typically trade at lower multiples. It is important to interpret this metric in context rather than as a standalone number.

Carter's currently trades at 13.33x earnings. This is noticeably below the Luxury industry average of 18.43x and even further below the average for peers, which sits at 27.70x. While this may seem like a bargain at first glance, a straight comparison risks missing some critical nuances related to Carter's unique growth profile and risk factors.

This is where Simply Wall St's proprietary "Fair Ratio" comes in. Unlike basic industry or peer averages, the Fair Ratio incorporates not just the company's earnings growth outlook, but also its risk profile, profit margins, and market cap to deliver a more tailored benchmark. For Carter's, the Fair Ratio is calculated at 13.35x, almost identical to its actual multiple of 13.33x.

Since Carter's PE is virtually the same as its Fair Ratio, the stock appears fairly valued versus its fundamentals and risk profile at current prices.

Result: ABOUT RIGHT

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1404 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Carter's Narrative

Earlier we mentioned that there’s an even better way to understand valuation, so let’s introduce you to Narratives. A Narrative is your personal, data-backed story about a company. You create it by combining your unique perspective on Carter’s future (like growth, risks, or market trends) with your own financial forecasts, directly connecting the company’s story to its value. These Narratives make investing more transparent and actionable, letting you see why you value a company a certain way and easily share or compare your view with millions of investors on Simply Wall St’s Community page.

With Narratives, you decide when the price is right to buy or sell by comparing your calculated Fair Value to the market price, instead of relying solely on analyst averages or the latest news cycle. Because Narratives update automatically when Carter’s releases new earnings or major news breaks, your stance can react in real-time as conditions change.

For example, one investor’s narrative may highlight slowing birth rates, shrinking margins, and heavy competition, leading to a cautious fair value of $22.00 per share. Another might focus on new product innovation and improved international growth, seeing Carter’s worth as high as $28.00. Narratives put the story, numbers, and decision power in your hands, giving you a more dynamic edge as an investor.

Do you think there's more to the story for Carter's? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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