Stock Analysis

Is It Too Late To Consider Buying Carter's, Inc. (NYSE:CRI)?

NYSE:CRI
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Carter's, Inc. (NYSE:CRI), might not be a large cap stock, but it saw significant share price movement during recent months on the NYSE, rising to highs of US$85.24 and falling to the lows of US$69.01. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Carter's' current trading price of US$71.92 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Carter's’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

Check out our latest analysis for Carter's

What's The Opportunity In Carter's?

The share price seems sensible at the moment according to my price multiple model, where I compare the company's price-to-earnings ratio to the industry average. In this instance, I’ve used the price-to-earnings (PE) ratio given that there is not enough information to reliably forecast the stock’s cash flows. I find that Carter's’s ratio of 10.99x is trading slightly below its industry peers’ ratio of 12.7x, which means if you buy Carter's today, you’d be paying a decent price for it. And if you believe Carter's should be trading in this range, then there isn’t much room for the share price to grow beyond the levels of other industry peers over the long-term. Although, there may be an opportunity to buy in the future. This is because Carter's’s beta (a measure of share price volatility) is high, meaning its price movements will be exaggerated relative to the rest of the market. If the market is bearish, the company’s shares will likely fall by more than the rest of the market, providing a prime buying opportunity.

What does the future of Carter's look like?

earnings-and-revenue-growth
NYSE:CRI Earnings and Revenue Growth April 1st 2023

Future outlook is an important aspect when you’re looking at buying a stock, especially if you are an investor looking for growth in your portfolio. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. However, with a negative profit growth of -9.0% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Carter's. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? CRI seems priced close to industry peers right now, but given the uncertainty from negative returns in the future, this could be the right time to de-risk your portfolio. Is your current exposure to the stock optimal for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on CRI, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on CRI for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. This means there’s less benefit from mispricing. Furthermore, the negative growth outlook increases the risk of holding the stock. However, there are also other important factors we haven’t considered today, which can help gel your views on CRI should the price fluctuate below the industry PE ratio.

So while earnings quality is important, it's equally important to consider the risks facing Carter's at this point in time. Be aware that Carter's is showing 3 warning signs in our investment analysis and 2 of those are significant...

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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.