Fundamentals are strong for this shoe seller, while the shares are lagging.
Caleres (CAL) – Get Caleres, Inc. Report sells shoes. Not directly. Instead this global footwear company owns more than a dozen different brands that it markets and manufactures. They are also the single largest dollar holding in Paul Price’s portfolio.
Why?
“I liked shares of Caleres prior to the Covid invasion of 2020,” Price wrote recently on Real Money. “In January of 2020, the company sold for under $20, about 9.3 times its fiscal 2019 earnings per share of $2.10. In September 2018, those same shares fetched north of $41 on earnings per share of $2.21.”
Like all ‘non-essential’ retailers, “CAL was ordered to shut down its physical locations for some months. That caused quarterly losses during the fiscal first quarter and second quarter of 2020. Since then, though, Caleres has been solidly profitable.”
In fact, at this point Price considers Caleres’ business to be some of the best it’s ever been. Earnings are high. The CAL stock price is doing well. And the price-to-earnings ratio is, in his words, “insanely low.”
So what are the company’s shares really worth?
“A simple regression-to-the-mean valuation suggests a $54.21 target price by this time next winter. Add in the stock’s 1.21% current yield and 12-month total return could easily be above 135%. That is not far-fetched considering where the stock traded years ago on significantly less impressive fundamentals.”
The soft confidence that other investors have in Caleres keeps making things better as far as Price is concerned. Investors who see this company’s upside want to buy it, pushing his shares of stock higher. Those who don’t will buy put contracts from him, letting him collect shares of a stock he was going to buy anyway while also pocketing a contract premium.
“I challenge readers to give me any justification for the currently low valuation on CAL,” He wrote.
