Why Designer Brands Moved Up on My Best Buy List

Sometimes market action makes no sense. When that happens you need to review all available information on that stock to see if you, or everybody else, is the crazy party. Here is my current take on Designer Brands , the owner of DSW shoe stores. The past decade was mildly positive for Designer Brands. Per share revenues and cash flow climbed decently. Earnings per share grew less due to the covid-imposed store lockdowns of 2020. Total shares outstanding were reduced significantly, down about 24.5% from January of 2013. Why then am I so keen on shares which have lagged badly for continuous holders? Getting more absolute value for 70% off the 10-year ago price is an excessively great deal. Designer Brands' normalized price-to-earnings ratio has run between 15 times and 17 times current year's earnings. Whenever Designer Brands was available well below that range (green-starred below) it always bounced back sharply. Should have sold moments from 2013 through 2019 (pre-covid) always occurred only with Designer Brands fetching above average valuations. Designer Brands closed at just $9.63 as of Dec. 13, down from $19.40 as recently as August of 2022. At that quote, today's buyers are getting in at less than 5 times Fiscal Year 2023 EPS estimate. That seems insanely low by all historical measures. Even 10 times forward earnings could send Designer Brands back up to $19- $20. A more normal P/E could take it much higher than that. Throw out the covid-ravaged year 2020 and Designer Brands offered exit points at least double, and often triple to quadruple, last week's close at some point during every year since 2011. Yahoo Finance calls the stock undervalued but in typical fashion only calls for Designer Brands to be $13.67 by this time next winter. That appears to be too low a goal, as it implies Designer Brands can only command 7.6 times Yahoo Finances' FY 2023 estimate. Even so, achieving only that very modest goal will deliver a solid 44% if it takes a full year to happen. Research house Morningstar is more in line with my own feelings on Designer Brands. They label the shares as a 4 stars, out of five, buy. Morningstar deigns to provide year ahead goal prices but does let us know they see present-day fair value for Designer Brands as $16.85. That implies about 75% upside to what it is worth right now. Designer Brands traded to within a whisker of Morningstar's 5-star rating intraday on Jan. 10. It immediately bounced back by over 8%. FastGraphs focuses on quantitative factors just as I do. It calls Designer Brands' normalized P/E as just north of 17 times. Its present multiple represents a 68% discount to that. Assume a 12 multiple on FastGraph's forward EPS estimate and Designer Brands could rise by 140% by Jan. 31, 2024. Dream just a bit higher and more than a triple is possible by then. Executive Chairman Jay Schottenstein thought Designer Brands was a tremendous bargain during 2021. He and other insiders ponied up almost $19 million to buy shares on the open market at close to the $14 mark. I am certain he was disappointed, but not discouraged. Designer Brands ran up as high as $19.38 last August and he did not sell a share. Jay obviously believes he will be much better rewarded waiting for the Designer Brands to hit closer to its true value. Option writers can still benefit from shorting naked puts out to July 21, 2023, at strikes of from $10 to $15. Actual pricing and worst-case, if exercised prices, with Designer Brands at $9.63, on those are shown below. I see no reason anyone should be nervous about having to own DBI at any of those forced purchase prices. No matter which research you believe will be most accurate, Designer Brands appears grossly underpriced. Buy some shares, sell some puts, or consider doing both.

Why Designer Brands Moved Up on My Best Buy List

Getting more absolute value for 70% off the 10-year ago price is an excessively great deal.

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