Vera Bradley Stock Shows Every Sign Of Being Fairly Valued

GuruFocus.com
·4 min read

- By GF Value

The stock of Vera Bradley (NAS:VRA, 30-year Financials) appears to be fairly valued, according to GuruFocus Value calculation. GuruFocus Value is GuruFocus' estimate of the fair value at which the stock should be traded. It is calculated based on the historical multiples that the stock has traded at, the past business growth and analyst estimates of future business performance. If the price of a stock is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. At its current price of $13.02 per share and the market cap of $437.7 million, Vera Bradley stock shows every sign of being fairly valued. GF Value for Vera Bradley is shown in the chart below.


Vera Bradley Stock Shows Every Sign Of Being Fairly Valued
Vera Bradley Stock Shows Every Sign Of Being Fairly Valued

Because Vera Bradley is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth, which averaged 3% over the past three years and is estimated to grow 6.38% annually over the next three to five years.

Link: These companies may deliever higher future returns at reduced risk.

Companies with poor financial strength offer investors a high risk of permanent capital loss. To avoid permanent capital loss, an investor must do their research and review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are a great way to to understand its financial strength. Vera Bradley has a cash-to-debt ratio of 0.58, which which ranks in the middle range of the companies in the industry of Manufacturing - Apparel & Accessories. The overall financial strength of Vera Bradley is 6 out of 10, which indicates that the financial strength of Vera Bradley is fair. This is the debt and cash of Vera Bradley over the past years:

Vera Bradley Stock Shows Every Sign Of Being Fairly Valued
Vera Bradley Stock Shows Every Sign Of Being Fairly Valued

It poses less risk to invest in profitable companies, especially those that have demonstrated consistent profitability over the long term. A company with high profit margins is also typically a safer investment than one with low profit margins. Vera Bradley has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $468.3 million and earnings of $0.25 a share. Its operating margin is 2.79%, which ranks in the middle range of the companies in the industry of Manufacturing - Apparel & Accessories. Overall, GuruFocus ranks the profitability of Vera Bradley at 7 out of 10, which indicates fair profitability. This is the revenue and net income of Vera Bradley over the past years:

Vera Bradley Stock Shows Every Sign Of Being Fairly Valued
Vera Bradley Stock Shows Every Sign Of Being Fairly Valued

Growth is probably one of the most important factors in the valuation of a company. GuruFocus' research has found that growth is closely correlated with the long-term performance of a company's stock. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Vera Bradley's 3-year average revenue growth rate is better than 70% of the companies in the industry of Manufacturing - Apparel & Accessories. Vera Bradley's 3-year average EBITDA growth rate is 20.3%, which ranks better than 79% of the companies in the industry of Manufacturing - Apparel & Accessories.

One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Vera Bradley's ROIC is 2.77 while its WACC came in at 11.27. The historical ROIC vs WACC comparison of Vera Bradley is shown below:

Vera Bradley Stock Shows Every Sign Of Being Fairly Valued
Vera Bradley Stock Shows Every Sign Of Being Fairly Valued

In closing, The stock of Vera Bradley (NAS:VRA, 30-year Financials) is believed to be fairly valued. The company's financial condition is fair and its profitability is fair. Its growth ranks better than 79% of the companies in the industry of Manufacturing - Apparel & Accessories. To learn more about Vera Bradley stock, you can check out its 30-year Financials here.

To find out the high quality companies that may deliever above average returns, please check out GuruFocus High Quality Low Capex Screener.

This article first appeared on GuruFocus.

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