Wednesday, May 10, 2017

Analysis of Fast Retailing 2017

Logo of Fast Retailing 2017

Company: Fast Retailing

ISIN JP3802300008 | WKN 891638

Business: A Japanese retail group. They stand on a couple of brand pillars: UNIQLO (their largest brand), GU (offer low price fashion), Theory (offering fashion for the contemporary woman, launched in New York), COMPTOIR DES COTONNIERS (French origin offering fashion for women), PRINCESSE tam·tam (also French origin offering "lingerie made by women for women") & finally J BRAND (Californian origin offering fashion denim). My interest was aroused due to an UNIQLO store that appeared in Berlin.

Active: Highly brand based but with their biggest one Uniqlo they are present in Japan, China, Hong Kong, Taiwan, South Korea, Singapore, Malaysia, Thailand, Philippines, Indonesia, Australia, USA, UK, France, Germany, Russia and in Belgium. 

P/E: 83.4

Contrarian analysis of Fast Retailing 2017

The P/E of Fast Retailing is crazy high with over 80 and the P/B is also not good with 6.7 which gives a very clear no go from Graham. Their earnings to sales I find very, very low with 3% and the ROE has taken a deep dive and is now down at 8%. The book to debt have significantly changed since last year and it is now down at a ratio of 1 which means that they have almost doubled their debt and one need to start to wonder what the shareholders got for that.
in the last five years they have grown their yearly revenue by 14% which is really good and due to this we receive a motivated P/E of around 33 to 36 which means that fast Retailing is highly overvalued on the market today. Last year was however not a good year for them.
They pay a silly dividend of 0.9% which badly enough correspond to 77% of their earnings so it is very clear that they need to push up their earnings.

Conclusion: Graham says a very clear no to Fast Retailing and I am also not very happy of the development. They have very clearly problems on their home market which is such a large part of their business that even if things are going well internationally they are not able to compensate for the ground losses at home in Japan.I hope that this is a temporary fashion issue that can be turned around within an acceptable timeline. I will remain as a grumpy shareholder.

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