Is Now The Time To Look At Buying Guess', Inc. (NYSE:GES)?

Guess', Inc. (NYSE:GES), is not the largest company out there, but it saw a double-digit share price rise of over 10% in the past couple of months on the NYSE. As a small cap stock, hardly covered by any analysts, there is generally more of an opportunity for mispricing as there is less activity to push the stock closer to fair value. Is there still an opportunity here to buy? Let’s take a look at Guess'’s outlook and value based on the most recent financial data to see if the opportunity still exists.

Our analysis indicates that GES is potentially undervalued!

What Is Guess' Worth?

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 Guess'’s ratio of 7.12x is trading slightly above its industry peers’ ratio of 7x, which means if you buy Guess' today, you’d be paying a relatively sensible price for it. And if you believe Guess' should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that Guess'’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Guess'?

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. However, with an expected decline of -0.4% in revenues over the next year, short term growth isn’t a driver for a buy decision for Guess'. This certainty tips the risk-return scale towards higher risk.

What This Means For You

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

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

So while earnings quality is important, it's equally important to consider the risks facing Guess' at this point in time. To help with this, we've discovered 5 warning signs (1 is a bit unpleasant!) that you ought to be aware of before buying any shares in Guess'.

If you are no longer interested in Guess', 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.