At US$45.53, Is Zumiez Inc. (NASDAQ:ZUMZ) Worth Looking At Closely?

Zumiez Inc. (NASDAQ:ZUMZ), 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 Zumiez’s outlook and valuation to see if the opportunity still exists.

See our latest analysis for Zumiez

Is Zumiez still cheap?

According to my price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. 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 Zumiez’s ratio of 8.44x is trading in-line with its industry peers’ ratio, which means if you buy Zumiez today, you’d be paying a relatively reasonable price for it. Although, there may be an opportunity to buy in the future. This is because Zumiez’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 kind of growth will Zumiez generate?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. 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 Zumiez, it is expected to deliver a negative earnings growth of -5.7%, 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? Currently, ZUMZ appears to be trading around industry price multiples, 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 beneficial for your total portfolio? And is the opportunity cost of holding a negative-outlook stock too high? Before you make a decision on ZUMZ, take a look at whether its fundamentals have changed.

Are you a potential investor? If you’ve been keeping an eye on ZUMZ 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 crystallize your views on ZUMZ should the price fluctuate below the industry PE ratio.

If you'd like to know more about Zumiez as a business, it's important to be aware of any risks it's facing. For example - Zumiez has 1 warning sign we think you should be aware of.

If you are no longer interested in Zumiez, 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.