Why Shoe Carnival, Inc. (NASDAQ:SCVL) Could Be Worth Watching

Shoe Carnival, Inc. (NASDAQ:SCVL), is not the largest company out there, but it saw significant share price movement during recent months on the NASDAQGS, rising to highs of US$28.58 and falling to the lows of US$20.38. 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 Shoe Carnival's current trading price of US$20.38 reflective of the actual value of the small-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Shoe Carnival’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Shoe Carnival

What's The Opportunity In Shoe Carnival?

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 Shoe Carnival’s ratio of 5.06x is trading slightly below its industry peers’ ratio of 9.86x, which means if you buy Shoe Carnival today, you’d be paying a decent price for it. And if you believe that Shoe Carnival should be trading at this level in the long run, then there’s not much of an upside to gain over and above other industry peers. Although, there may be an opportunity to buy in the future. This is because Shoe Carnival’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.

Can We Expect Decent Returns From Shoe Carnival?

Valuation is only one aspect of forming your investment views on Shoe Carnival. Another thing to consider is whether it is actually a high-quality company. The best type of investment is always in a great company, producing robust returns at a cheap price. A way to assess stock quality is by looking how much it returns to you as the investor compared to how much you’re invested. Shoe Carnival is expected to return 18% of your investment in the next couple of years if you buy the stock today. This is a relatively good return on your investment which builds up the case for owning the stock.

What This Means For You

Are you a shareholder? SCVL’s optimistic future return appears to have been factored into the current share price, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the financial strength of the company. Have these factors changed since the last time you looked at SCVL? And will you have enough conviction to buy should the price fluctuate below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on SCVL for a while, now may not be the most optimal time to buy, given it is trading around industry price multiples. However, the high returns are encouraging for SCVL, which means it’s worth diving deeper into other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

Keep in mind, when it comes to analysing a stock it's worth noting the risks involved. In terms of investment risks, we've identified 1 warning sign with Shoe Carnival, and understanding this should be part of your investment process.

If you are no longer interested in Shoe Carnival, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.