April 5th, 2024 – On Friday, Zalando lost 5.72%, it lost 9.08% in the last 5 trading days, but it is up 24.07% in the last month, 11.25% in 6 months and 15.6% from the beginning of 2024.
Founded in 2008 in Berlin, Zalando is a leading European company in the e-commerce sector for fashion and lifestyle products. Zalando had its golden era during the pandemic with a stellar operating income and having a Compounded Average Growth rate on EBIT of 45% from 2019 to 2021.
This analysis of the company starts from 2012, and since then, Zalando revenue increased at a CAGR of 19.78%, while the EBIT grew 11.78% from 2014, because in 2012 and 2013 it was negative and for this reason the CAGR formula was not applicable. Now, let’s analyze the company’s current and historical EV/EBIT ratio, that compares the company’s enterprise value to its earnings before interest and taxes. This ratio is a useful metric to determine if a stock is priced too high or too low. EV/EBIT is better if used to compare stocks of the same sector, but it can be said that commonly it should be around 15/20 to be appropriate. Currently, Zalando EV/EBIT is relatively high (28.4), but the company has reduced this ratio by almost 6 times in one year and it is at its lowest in 10 years. For this reason, the company has a high potential upside since the mean from 2014 to 2023 was 67.6. Talking about margins, the company does not have good ones. Zalando registered in 2023 an operating margin of 1.88%, almost 3 times its operating margin in 2022 but half the ones from 2020 and 2021. If we make a mean of these margins from 2012 to 2023, by including also the negative margins, then the current ones are above this mean. But if we were to include only the positive margins, then the current one is under the mean by almost 1%. The same thing can be said for the profit margin, which differs from the operating one for including in its measurement also non-operating activities, and it is also very low, at 1.5%. A good signal is that the short interest on the company is only 0.02%, which means that only a few investors are betting against the company’s performance. Another positive factor is that Zalando’s net debt is negative by €872 million. Though, this does not mean that the company has 0 debt, but it means that the company has more cash and cash equivalents than debt, and so is very financially stable. This allows Zalando, if the management were to decide that, to expose more to debt, in order to invest this money and grow more. Company’s EPS and net income had a stellar growth in 2023, reaching almost 5 times the values of 2022 and almost getting back in line with the pre pandemic levels. The management recently approved a share buyback program of more than €100 million that will end at the end of July. These operations will leave less shares to the market meaning that, if the amount of demand for shares remains the same, the value of stocks will rise, as well as the EPS.
In conclusion, this was a brief stock analysis of Zalando, a company that we are watching closely for our portfolio to invest in.
This is not financial advice
Author: Filippo Ferrero