Caleres has gotten torched over the last six months - since October 2024, its stock price has dropped 47.5% to $16.64 per share. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy Caleres, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free .
Even though the stock has become cheaper, we're swiping left on Caleres for now. Here are three reasons why CAL doesn't excite us and a stock we'd rather own.
Why Do We Think Caleres Will Underperform?
The owner of Dr. Scholl's, Caleres (NYSE:CAL) is a footwear company offering a range of styles.
1. Revenue Spiraling Downwards
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Caleres’s demand was weak over the last five years as its sales fell at a 1.4% annual rate. This wasn’t a great result and signals it’s a low quality business.
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Caleres’s revenue to stall. While this projection implies its newer products and services will spur better top-line performance, it is still below average for the sector.
3. Previous Growth Initiatives Haven’t Impressed
Growth gives us insight into a company’s long-term potential, but how capital-efficient was that growth? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
Caleres historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 2.4%, lower than the typical cost of capital (how much it costs to raise money) for consumer discretionary companies.
Final Judgment
We see the value of companies helping consumers, but in the case of Caleres, we’re out. Following the recent decline, the stock trades at 5.4× forward price-to-earnings (or $16.64 per share). While this valuation is optically cheap, the potential downside is huge given its shaky fundamentals. There are superior stocks to buy right now. Let us point you toward a safe-and-steady industrials business benefiting from an upgrade cycle .
Stocks We Would Buy Instead of Caleres
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