Macro and Company-Specific Data Scream 'Buy This Stock'

If you believe we are in for a nice rally here is a name that appears poised for a huge upturn.

Author:
Paul Price
Publish date:
Oct 18, 2022 7:00 AM EDT

I wrote last week about the calendar seasonality factor, which suggested excellent results over the coming three months. We are barely into the best quarter of the year based on share price action over the past 22 years.

Last weekend I came across this chart detailing how markets have performed versus the four-year presidential term cycle. Since 1928 this indicator screams loudly that we just passed what is traditionally the lowest ebb of that whole cycle. The third and fourth years have far outperformed the first halves of presidential terms.

Macro factors thus have an additive effect due to the overlap of two metrics, both suggesting great times ahead.

Nothing in factors like those, however, tell you anything about what you should be buying. Nor does it help in determining what any specific company is worth.

Assessing individual stocks is a lost art. Other than in my own articles here on Real Money Pro you rarely see people lay out a clear case for what stocks are selling for versus where they should be priced. It is even rarer to see any price target tied to a well-defined time horizon.

If you believe we are in for a nice rally here is a stock that appears poised for a huge upturn.

G-III Apparel (GIII) is not widely followed but owns and licenses brands you certainly know.

GIII's FY 2021 (ended Jan. 31, 2022) set a record for sales, cash flow, book value and earnings per share.

Even though GIII may see a small regression in FY 2022 EPS, due to lack of new stimulus checks, its decade-long growth is most impressive.

Buyers at GIII's Oct. 16, 2022, close were getting more than triple the earnings per share from 10 years earlier at an absolute price which was 18% below what was in effect exactly a decade ago.

A glance at the data below shows a typical P/E for G-III runs about 14.5x. At last week's close that figure was stunningly cheap at just 4.3x its FY 2022 estimate. That valuation was well below what was in effect at the Covid-panic low.

Value seekers at 2020's nadir saw GIII run from $3.00 to $35.80 in under 14 months. That is what can happen from absurdly low valuation points.

Even a partial reversion towards the mean to 13 times next year's estimate could send GIII to north of $50.

That goal is not crazy. GII changed hands above $50 during 2014, 2015, 2016 and 2018 on EPS far below what they are posting today. It topped out at $73.90 during 2015 on final EPS of just $2.46.

I am not alone is seeing huge upside for GIII. Yahoo Finance sets a very conservative 12-month target price of $23.39 for GIII. That implies greater-than-46% upside even if the shares only command 6.3 times their own FY 2023 estimate.

Independent research house Morningstar lists GIII as a 5-star best buy. It calls the stock's present-day, as opposed to year-ahead, fair value as $35.62. Hitting that very realistic goal would deliver over 123% from last week's quote.