Monday 13 May 2013

Analysis of Inditex

A Spanish fashion retail chain with Zara, Pull&Bear etc.

Company: Inditex

Business: Fashion retail with Zara, Pull & Bear, Massimo Dutti, Bershka, Stradivarius, Oysho, Zara Home and Uterqüe. I´m sure that several of these stores are known to you.

Active: They have 6009 stores in 86 markets. Mainly in Europe where they are well established but also in the USA. They are expanding strongly in Asia and some in Africa.

P/E: 27.0

They are running a fairly high P/E with 27 and their P/B is 7.5 which means according to Grahams formula that this stock should definitely not be bought today. The earnings to sales is 15% which I find to be fairly acceptable margin. Book to debt is also not so bad and they can pay of all their debt if need be. The yearly growth for the last five years has been almost 9% which is high especially if one calculated that into how many stores they need to open per year to keep it up (almost 600 new stores in 2013). According to Lynch and Graham due to the growth a P/E of 27 to 30 is motivated which means that with its current P/E of 27 the market have valued Inditex correctly. They pay out 2.15% in dividends which represents almost 60% of the earnings. That I find a little to high it would be better if it would be closer to 50%.

Conclusion: Inditex is a great company group with several well known brands and each new brand they open up has a new growth potential in the countries where they are already established. Today I find that the price is too high for me to step into it but if the price drops then it would be a great company to be a shareholder in.

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