UK designer footwear and accessories group Jimmy Choo, (CHOO.L) has just celebrated 20 years in business, and during that time has developed a growing global distribution network encompassing 120 directly operated stores. The Company’s products include women’s shoes, handbags, men’s shoes and small leather goods, in addition to the licensed categories of sunglasses, eyewear, fragrance and soft accessories.
Group brands include BRAND DNA and SANDRA CHOI, and these, along with the core product range are also sold through catalogue and online.
On August 25th, the group reported half-year results, revealing 9.2% revenue growth at reported currency (3.8% at constant currency), and a 42.6% hike in reported operating profit to £25.3m. CEO Pierre Denis said growth and margin expansion had resulted in improved earnings, beating the market despite the difficult operating environment. During the period CHOO also delivered solid growth in Asia, and China, and managed repositioning in a difficult USA market. Denis said the group had made a good start to H2, and the company was optimistic over prospects for the full year. A trading update is scheduled for November.
The VectorVest stock screening system had identified the potential in CHOO in the run up to the Brexit vote at the end of June when the shares dipped briefly under 100p. VectorVest attributes a current value of 189.32p per share, therefore with the stock currently trading at 135p, it is currently undervalued. Value is computed from forecasted earnings per share, forecasted earnings growth, profitability, interest, and inflation rates. Added to this, CHOO also scores highly on the Relative Value (RV) metric, and indicator of long-term price appreciation potential. The stock has an RV of 1.41, which is excellent on a scale of 0.00 to 2.00. This indicator is far superior to a simple comparison of Price and Value because it is computed from an analysis of projected price appreciation three years out, AAA Corporate Bond Rates, and risk. CHOO also offers good Relative Safety (RS). This metric is computed from an analysis of the consistency and predictability of a company’s financial performance, debt to equity ratio, sales volume, business longevity, price volatility and other factors.
The chart of CHOO.L is shown above. The green line above the price is the VectorVest calculated value of the share while the blue line in the window below the price shows Earnings per share (EPS). The share recently charted a strong and wide based “double bottom” chart pattern. Technical analysts regard this as a bullish signal. Also of bullish significance is the fact that the share has broken and tested a long term trendline. The share is currently finding resistance at the highest point between the lows that define the double bottom formation. Through this level the objective from the double bottom and the valuation calculated by VectorVest are both at around the 185 level.
In summary, Jimmy Choo offers excellent value and a decent margin of safety. With the stock currently trading at 135p vs. a current value of 189.32p, in the run up to the November trading statement, VectorVest rates the stock as a buy.
12th October 2016
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