Is It Too Late To Consider Buying Urban Outfitters, Inc. (NASDAQ:URBN)?

Urban Outfitters, Inc. (NASDAQ:URBN), is not the largest company out there, but it saw a decent share price growth in the teens level on the NASDAQGS over the last few months. With many analysts covering the stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. But what if there is still an opportunity to buy? Today I will analyse the most recent data on Urban Outfitters’s outlook and valuation to see if the opportunity still exists.

Check out our latest analysis for Urban Outfitters

Is Urban Outfitters still cheap?

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 Urban Outfitters’s ratio of 6.6x is trading slightly above its industry peers’ ratio of 5.79x, which means if you buy Urban Outfitters today, you’d be paying a relatively reasonable price for it. And if you believe that Urban Outfitters should be trading at this level in the long run, then there should only be a fairly immaterial downside vs other industry peers. Although, there may be an opportunity to buy in the future. This is because Urban Outfitters’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 Urban Outfitters look like?

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. Though in the case of Urban Outfitters, it is expected to deliver a negative earnings growth of -4.4%, which doesn’t help build up its investment thesis. It appears that risk of future uncertainty is high, at least in the near term.

What this means for you:

Are you a shareholder? URBN 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 reduce the risk in your portfolio. Is your current exposure to the stock beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on URBN, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping tabs on URBN for a while, now may not be the most advantageous 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 URBN should the price fluctuate below the industry PE ratio.

If you want to dive deeper into Urban Outfitters, you'd also look into what risks it is currently facing. Every company has risks, and we've spotted 1 warning sign for Urban Outfitters you should know about.

If you are no longer interested in Urban Outfitters, 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.