Pandora stock analysis

Pandora Stock Analysis – The Ultimate Value Trap For Investors Looking At Financials, Not At The Business

Pandora’s stock has been a great investment up to 2016. However, since then the trend has completely reversed.

Pandora stock price
Pandora stock price

Up to 2016, the stock was a pure growth stock. However, at some point every company has to transition from growth to maturity. If we take a look at revenue, growth stopped in 2016, earnings growth reversed but the number of shares outstanding keeps going down while free cash flows remain extremely high and 25% of revenue.

Pandora stock financials
Pandora stock financials – Source: Pandora Stock – Morningstar

Pandora stock – the making of a value trap

Pandora stocks is another example where where the business isn’t doing bad, it is Pandora’s stock price that has been doing terribly. The current market capitalization is 27 billion DKK while the free cash flows over the trailing 12 months is close to 6 billion. This translates into a free cash flow yield of above 20% alongside a dividend yield of 6.69%. The company owns 6.6% of the shares outstanding as treasury shares which means the number of shares outstanding should fall even more.

To improve the situation, the company has launched a turnaround programme called NOW that includes a brand relaunch with a significant increase in marketing investments, 50 store closures and significant cost savings. They have new store concepts, new web stores, new collaborations with influencers etc…

However, traffic trends keep being negative.

Pandora stock analysis - traffic
Pandora stock analysis – traffic – Source: Pandora, investor relations

Despite the lower traffic and the big decline in revenue, the company still managed to achieve free cash flow.

Pandora stock analysis - Q3 Results
Pandora stock analysis – Q3 Results – Source: Pandora, investor relations

However, there has been an inventory buyback included in the 1.1 billion DKK spent on restructuring.

Pandora stock analysis – don’t just look at it from a value investment perspective

The company is collaborating with Millie Bobby Brown, a girl that has 31 million followers on Instagram, but I don’t see any Pandora in here feed.

Pandora stock analysis strategy
Pandora stock analysis – Instagram influencers? Source: Instagram

The girl, like all other Instagram stars has her own brand, not of jewellery but of makeup. In any case, today you need to make it on Instagram to sell and pandora is definitely out of the equation, it was hot, but now it definitely isn’t. Perhaps it will become again in the future, but as it is with all these fashion brands, you never know.

A look at Google trends shows how interest in the brand has been fading.

Pandora stock analysis
Pandora stock analysis

Plus, they launched the Harry Potter collection!!!! That was cool when I was a kid😊)))

Anything can happen here but there is no competitive advantage. Therefore, the risk is too high for me. Further, on the buybacks, they’ve been doing them since 2013. Given that the stock price now is at the same level as back then, while being much, much higher in between, buybacks have actually destroyed shareholder value and might continue to do so.

There might be a private fund that will take over the company, but I don’t know at what valuation. Not my cup of tea.

If you want to learn more about investing, please join my Free Stock Market Investment Course. The course is based on value investing, but as you have seen in this course, there is so much more than value investing to be a great investor.

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