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