Many analyst firms, including Zacks, are currently giving Express (EXPR) a strong sell suggestion based on the fact that the 50 day moving average dropped below the 200 day moving average. The outlook on Express has been portrayed as bleak in many articles and price targets have been slashed across the board, due to the terrible revenue and earnings guidance. Being value investors here at Equities Lab, we decided to jump in and analyze Express from a fundamentals standpoint and see if it will make a good value investment. So this poses the question, should we go against the overwhelming majority and buy into Express based on fundamental value factors?
There are many attractive things, from a value standpoint, that suggest Express may be a good long term investment - including
· Has a Piotroski F-Score of 8 out of 9
· Price/sales of 0.5
· Price to book below 2
· Increased e-commerce effectiveness may improve sales
· Passes the High Piotroski and Low P/E screener
High Piotroski and Low P/E
This screen attempts to find the best ranking value investments currently available in the market. Relying heavily on the Piotroski F-score, we can easily analyze the potential value of each stock that is returned. The other, almost more important piece, takes it a step further and looks only at companies whose Price-to-earnings ratio are in the bottom 25% of their sector and over 0. The resulting companies are good value investments.
As of 6/15/16 there are only a handful of investments based on this screen. These companies may not have the best technical indicators - like the in the case of EXPR, they are cheap!
From this photo of the backtest you can see that we are successfully making more than the market - averaging 1.64% on a monthly basis while the market only averages .73% monthly.
Here you have a shot of the stock pick page for Express. This chart doesn't look all that promising, especially since the only time you would have actually traded Express is at the beginning of April and since then the share price as plummeted. However, we aren't worried about what the chart looks like as we are going to dive deeper than the current share price and look at the underlying fundamentals of the company.
Green Flags:You will be surprised to see that Express has multiple green flags that value investors, like me, would be attracted to.
-HIgh Piotroski Score:A Piotroski score is a score developed by a University of Chicago professor that analyzes nine different criteria based on a company's financials and returns a score that reflects a company's value. In the case of Express, they scored an 8 out of 9. How does a strategy based solely on companies that have a Piotroski score of 8 or 9 do over the past twenty years?
-Beneish M-Score of -2.749:There are times when management may mess with the books a little bit in order to hit their number. Since most investors don't double as accountants specializing in auditing there is a quick score that can be implemented in order to assess the probability that a company is being fraudulent. This score, the Beneish M-score takes a look at Days of Sales Receivables, Gross Margin, Asset Quality, Sales Growth, Depreciation, Sales General and Admin, Leverage, and Accruals to eventually come up with a score. Now, in order for a company to pass this score with flying colors they need to have a score below -2.22, and, thankfully in the case of Express, they do, coming in at -2.749. Below you'll see what happens when we screen for every company that has a Beneish score between -3 and -2.4.
-P/E of 10.65:The Price-to-earnings ratio is incredibly important, not just to value investors but anyone looking to invest in a company long term. Basically, if a company has an incredibly high P/E it is possible the stock is overbought and won't go any higher as the company already costs far more than it's currently making. On the flip side, if a company has a negative P/E that shows that they are making negative earnings. In the case of Express, their P/E is 10.65 which is right at the sweet spot for many value investors. Below you'll see what happens when we screen for every company that has a P/E between 8 and 12.
-Value Score of 6:The value score is a proprietary (but not secret) score developed by Equities Lab. Much like the Piotroski F-score, the Value Score uses 9 different criteria to assess how undervalued a company is, and allow someone to decide whether or not to invest in the company. Below you'll see the results of a screener where we screen for every company that has a value score of exactly 6.
Red Flags -
-Missed Earnings Estimates by $0.02/share:In Express's most recent earnings report they missed their revenue number thanks to a drop in overall sales - meaning that no specific space within their business resulted in this loss. This fact seems to be scaring a significant number of people away from the stock, when in reality, since April of 2016 the total quarterly revenue has dropped by over $30 billion, this isn't a problem with Express, this is a problem with the industry and Express is just getting hit because it's there.
Low Growth:
Looking back at the last 5 years, Express has had less than 5% growth, both in the top and bottom lines. This would seem to be a highly unattractive fact. But these growth rates (here we show all companies with 5 year growth rates of net income and sales between -5% and 5% annually) do not spell doom for stocks.
Summary:
Express, Inc may not be growing very fast. It may not be in an exciting industry, and it doesn't have any exciting technologies. It has terrible technical. But, it sure is cheap! For that reason, it may be a keeper.