An Insider Bought Shares of G-III Apparel
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On Jan. 2, Director of Business Development Jeffrey Goldfarb at G-III Apparel Group (NASDAQ: GIII) bought 3,000 shares of the stock at an average price of $33.82. The company primarily provides women’s and men’s apparel and accessories. G-III has a market capitalization of about $690 million; however, an average of about 180,000 shares have been traded per day over the last three months and combined with the current stock price that yields over $6 million in daily dollar volume. On average, stocks bought by insiders tend to beat the market, though this isn’t always the case, so it’s important to do further research on these stocks (as would be the case for the results of any screen).
The third quarter of G-III’s fiscal year ended in October 2012. Revenue was up 7% compared to the same period in the previous fiscal year, led by wholesale licensed goods and retail. Wholesale non-licensed goods saw slightly lower sales, but that division is much smaller than the licensed goods business and so the decline was easily offset. Thanks in part to COGS expenses being held down, operating profits rose 10% and net income increased at a similar rate. A similar pattern emerges if we look at the first nine months of the fiscal year: a 9% increase in sales, with wholesale licensed goods being responsible for most of the gain in absolute terms, and a 9% rise in operating income.
Even with what appears to be fairly good business conditions, the market is quite pessimistic on G-III. The stock trades at only 13 times trailing earnings, a level which we’d generally expect to correspond with very low growth rates, and even at its current pricing 15% of the outstanding shares are held short. Analyst expectations, however, are for growth to continue: The forward P/E multiple is 10 and the five-year PEG ratio is 0.6. Between these attractive valuation metrics and the insider purchase, we think that the stock is a potential value play.
Value investor Joel Greenblatt initiated a small position in G-III during the third quarter of 2012. Greenblatt is the author of a number of investment books including You Can Be A Stock Market Genius (find more of Greenblatt's stock picks). Chuck Royce’s Royce & Associates, a fund which tends to focus on small-cap and mid-cap stocks, was also buying the stock during the quarter and closed September with 1.9 million shares in its portfolio (see Royce's favorite stocks). Scopia Capital, which is managed by Matt Sirovich and Jeffrey Mindich, was the largest holder of the stock in our database of 13F filings from hedge funds and other notable investors, with slightly more shares in its portfolio than Royce had.
We would compare G-III to Gildan Activewear (NYSE: GIL), Columbia Sportswear Company (NASDAQ: COLM), Under Armour (NYSE: UA), and Nike (NYSE: NKE). Columbia is the only one of these peers to have a trailing P/E of less than 20 (at 19), so G-III ends up looking quite cheap compared to these other companies. In fact, Under Armour and Gildan trade at 30 times trailing earnings or even higher. In addition, Columbia and Nike actually reported lower net income in their most recent quarter compared to the same period in the previous fiscal year; while earnings were up strongly and Under Armour and Gildan, we’ve already noted their premium pricing.
G-III’s earnings multiples are quite low, and certainly don’t reflect the high value the market is placing on similar companies. The business has been doing well recently, and with earnings expected to continue moderate growth the stock does look quite attractive. We’d be very curious to discover why there is so much short interest; unless there turns out to be a very persuasive short case, G-III might make for a good buy or as the long side of a pair trade with one of its peers.
This article is written by Matt Doiron and edited by Meena Krishnamsetty. They don't own shares in any of the stocks mentioned in this article. The Motley Fool recommends Nike and Under Armour. The Motley Fool owns shares of Nike and Under Armour. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!