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Footlocker, Inc.

Foot Locker, Inc. is American based shoe and apparel retailer. The company was incorporated in 1989 and is headquartered in Midtown Manhattan, New York City. Foot Locker operates two segments of sportswear and apparels; direct-customer and athletic stores. The athletic footwear outlets include Lady and Kids Foot Locker stores, Champs Sports and Runners Point. On the other hand, the company also operates direct-customer channels such as eastbay.com and other internet and mobile sites. Eastbay provides direct sportswear solutions to athletes and high schools in the United States. As of 2017, Foot Locker had more than 3,270 stores in 26 countries in the United States, Canada, Europe, Asia, New Zealand and Australia. The company operates as FL at NYSE (Bloomberg, 2018).

Stock Analysis

Stock analysis is an important method used by investors and business to evaluate the stock market and make buying and selling decisions. Companies gain competitive advantage in the market by evaluating and studying current and past stock data. Stock analysis follows two basic methods; technical and fundamental analysis. Fundamental analysis utilizes concrete data available in the market about the business. Some of the important sources of data used in fundamental analysis include financial reports, market share and company assets. Therefore, financial statements including cash flow statements, financial statements and balance sheet accessed through company’s 10-Q and 10-K reports provides a rich data for fundamental analysis. Technical analysis, on the other hand, evaluates company’s business by looking at how pure market’s factors affect stock’s movement. Usually, investors use past market action to predict the future stock movement. Additionally, demand and supply, price and volume are primary concerns that investors look into during technical analysis of the stock market.

Stock evaluation helps traders who want to invest in Foot Locker Company to determine market developments and forecast future prices. Combination of different data from the company helps the investors to determine whether the current stock value is undervalued or overvalued and predict future prices of the stock. Investors establish the attractiveness of the company by conducting stock analysis. It also helps traders to have a clear vision of the market which allows them to make the right investments at the right time. Foot Locker Company is one the rapid growing retailers and expected to match the likes of Best Buy in the coming future. The company’s strong market performance makes it a potential destination for investors. Foot Locker’s income statement indicates company’s uptick increase in total revenues and gross profits in the recent years. In 2016, the company total revenues generated from sale of sportswear from over 26 countries were $7.41billion and increased to $7.77 billion in 2017 and $7.78 billion in 2018. Similarly, company’s gross profit increased from $2.51 billion in 2016 to $2.64 billion in 2017. As for the quarter ending July 31, 2018, Foot Locker registered $1.78 billion in revenues which is a 4.76% year-over-year increase (Macrotrends, 2018).

Liquidity

The analysis of the company’s financial statement is important in establishing it profitability, solvency, efficiency and liquidity. Investors usually use different ratios to estimate whether the company is able to service its short-term liabilities using available current assets. The liquidity ratios include quick ratio, cash ratio and current ratio. The company’s current ratio is obtained by diving current assets by current liabilities. The data used in calculation is obtained from company’s financial statement balance sheet. Current ratio more than 1 indicates that the company is capable of covering it short-term debt obligation. The figure below shows Foot Locker 2018 balance sheet.

The data obtained from the balance sheet shows that the company’s current ratio is 4.12, 2.05 quick ratio and 1.38 cash ratio. This implies that the Foot Locker is financially healthy and can pay its short-term debts when it is due. The company’s total debt as of July 2018 was $124 million and $1.35 billion liabilities.

Efficiency

Company efficiency also plays an important role in determining whether it is a good investment play or not. Traders and investors analyze company receivables and inventories when evaluating efficiency. The companies that keep low inventory and reliable mechanisms for collecting debts are considered to be efficient and competitive according to McClure (2018). The company efficiency is measured by calculating the efficiency ratios. The efficiency ratios determine how a company manages liabilities and assets in order to maximize profits. Commonly used efficiency ratios by the investors and traders include accounts receivable ratio, inventory turnover ratio and employee turnover. Foot Locker Company has 158,142 employees working in more than 3,300 store locations. The average income per employee is $5771. The company’s receivable turnover by July 2018 was 74.83 and total asset turnover ratio was 2.00 (WSJ, 2018). Accounts receivable turnover ratio provides how efficient the company is in collecting sales revenues from its customers. Foot Locker is considered to be highly efficient company because it has high receivable turnover of 74.83.

Pricing

Pricing is one of the important strategies used by companies in marketing and in the equity market. Businesses place value on their products and services that is used as selling price in the market. In most cases businesses decides prices for their goods and services, but external forces such as demand and supply also determine market prices. The market price is the price which is obtained when forces of supply and demand converge at a point. A shift in demand or supply causes movement in the market price. In the stock market, market makers quote market prices using the stock prices using ask and bid prices. The dealer holds the order at the order and only executes it when market prices has approached order price. Evaluating company’s stock prices helps the investors to anticipate the future by making decisions whether to buy, hold or sell the stocks. Stocks prices always fluctuate from time to time.

As of Nov. 9, 2018, Foot Locker close equity price was $50.25 which a slight increase from the previous close at $50.24. The figure below obtained from Wall Street Journal shows Foot Locker, Inc. stock price chart for Nov.5th to Nov.9th. t

The company raised it stock price target from $52 to $55 and is expected to perform positively in the coming 12-24 months after it was upgraded to outperform its competitors in the market. In the early Sept. 2018, Foot Locker shares were up by 2.7% and Garcia (2018) believes that the shares will shoot +2% in the third quarter and +3% in the fourth quarter due to improvement in Nike assortment. Foot Locker, Inc. sources 70% of its footwear and apparels from Nike. Massive fluctuation of Foot Locker share prices in the past is associated with the Nike Brand. The most recent controversial issue associated with Nike Brand being Colin Kaepernick. The issue caused public uproar as Nike brand fans tore and burnt their Nike apparels following the controversial spokesperson. However, the Foot Locker share prices have been improving in the recent past. In 2016, the stock prices reached its highest at $60.79 and closing at $67.73 in the same year. So far, the average high stock price in 2018 is $47.89 which is a dip from $52.15 in 2017. The following chart shows Foot Locker share prices since 1980s.

Stock Performance

Stock performance evaluation provides an opportunity for investors to decide on the appropriate investing strategies, diversification plans and risks. Every in the stock market has different approach to stock performance. Some of the common variables used in stock performance include stock’s total returns, comparison with market indexes such as S&P 500 and Dow Jones Industrial Average, and stock’s performance relative to its primary competitors. Other variables for measuring company’s stock performance are evaluating whether the company pays its dividends and considering real return. The primary goal of the investors in the market is to maximize total return. Total return refers to total rewards of an investment over a period of time. The returns include all dividends paid, interest paid and capital gain. Total return is calculated by adding sum interest and dividends to the closing price and dividing by the initial investment and subtracting 1. On the other hand, the formula for estimating future total returns is given by: Change in Earnings per Share (EPS)*change in per share ratio = change in share price.

Price to Earnings Ratio is a key metric used by investors. It shows how much the investor is willing to pay each amount of money earned in a given equity. Foot Locker price to earnings ratio (PE) has been improving in the recent past. Currently, the company’s P.E is 19.23 while return on equity is 10.86. As of November 9th 2018, Foot locker return on invested capital was 10.36 while return on total capital was 28.53. Comparing Foot Locker’s PE to S&P 500 shows that the current PE level is above the midpoint. The chart below shows Foot Locker PE and its comparison to S&P 500 (Zacks Equity Research, 2018). The company stock’s PE performance in the industry is favorable. The PE ratio in the last twelve months indicates that the stock is undervalued as compared to its peers in the market. Forward PE ratio of the company stock’s performance indicates that it may a head in the near term.

Valuation Forecast

Valuation forecast is an important component of the security analysis. The ultimate goal of the investors when forecasting growth and revenue of the company is to establish the actual value of the stock. Investors gather information on the company revenue from financial statements such as balance sheet and income statements which are important in modeling company revenue and growth forecast. Accurate forecasts enable the investors to make informed decision on the regarding the best investment.

Valuation forecast involves predicting future sales and stock’s performance of the company. Foot Locker price share is expected to rise in the increase in future based on the current stock performance. For instance, as of Nov. 9th the company’s price to earnings (PE) ratio was 19.74, $2.55 EPS and the outstanding stock was $114.90 million. Another key metric used to forecast future share price is the company’s market capitalization. Currently, Foot Locker market cap stands at $5.77 Billion and is expected to be grow in future. The chart below shows Foot Locker’s stock price forecast in the next 12 months. The forecast is modeled from the historical data obtained from the last 12 months.

Stock Analysis Summary

As discussed, stock analysis plays an important role in making investment decision in the stock market. During stock analysis, data obtained from the financial statements including balance sheet, income statements and cash flow statements are key in analyzing stock performance of the company. Stock analysis also focuses on the company’s liquidity and efficiency level. The company liquidity involves factors such as current ratio, quick and cash ratios. Currently, Foot Locker current ratio is 4.12 which imply that the company is healthy to invest in because the ratio is above 1. Also, company efficiency mechanisms such as account receivable turnover determine whether the company is worth investing in the market. The Foot Locker receivable turnover ratio at 74.83 is high indicating that the company is fit for investment. Additionally, evaluating company stock’s performance and conducting forecast is essential to investors in making the right investment decisions.

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