Levi Strauss & Co. is an American clothing company that is known globally for its Levi’s brand of denim jeans.
With a successful past and an even more successful outlook for the future, investors are considering if they should be investing in Levi’s. We take a detailed look at the company to help investors determine whether Levi’s is a buy.
What is Levi’s?
In 1852, Levi Strauss opened a dry goods company in San Francisco at the height of the California Gold Rush. Strauss quickly recognized a need for hardwearing clothes amongst working people.
Joining forces with tailor Jacob Davis, they combined copper rivet reinforcements with tough denim to create the first manufactured waist overalls in 1873, today these are known as blue jeans. What was once created for workers soon became popular among cowboys, rock stars, presidents and men and women alike.
The popular brand we know and love today was born and Levi’s became a global leader in jeans as well as one of the largest apparel companies in the world. Today, Levi’s products are available in more than 100 countries and the company continues to lead the clothing industry.
Financial and metrics
First taken public with an Initial Public Offering (IPO) in 1971, Levi Strauss & Co. was taken private again just 14 years later in 1985. But after a hiatus spanning over 30 years, Levi’s returned to wall street and once again went public in 2019.
Trading on the NYSE as NYSE: LEVI, shares opened at $22 per share in March 2019 before dipping to just $9.50 per share in April 2020. As of December 2021, Levi’s share price has reached $25 per share. The reason for the dip in share price was predominantly down to the pandemic forcing limited retailer operations. This meant that Levi’s 500 stores worldwide were unable to open and relied solely upon online sales.
Investment in Levi’s offers investors the opportunity to make good gains as well as receive regular payments in the form of dividends. The current dividend yield is 1.34%, while the P/E ratio is a healthy 21.52.
Year to year as of December 2021, the Levi’s share price has shown a 11.29% increase rising from $21.53 per share to $23.96. In addition, quarter to quarter revenue has been steady throughout 2021 and at the time of writing the price-to-sales ratio is 1.89, while the return on equity is 32.64%. Levi’s current profit margin sits at 8.37% and the company has an operating margin on 10.74% while its trailing twelve month revenue is $5.47B.
Levi’s has a market capitalization of 9.63B USD, which indicates it has a large-cap and is a well-established company within a well-established industry. Sentiment for Levi’s is good, it is expected that higher earnings and higher margins will propel the Levi Strauss stock price higher.
Is Levi’s a good investment?
As a company, Levi Strauss & Co. is executing its business strategy of expanding its direct-to-consumer business as well as launching its own second-hand denim store and developing non-denim products.
Levi’s is investing in the future of retail; this was evident with the opening of 21 smaller NextGen stores which deliver an elevated shopping experience. Utilizing customer data, product customization and interactive experiences, the company plans to open more than 100 NextGen stores across the US in the next two years.
While there would be no Levi Strauss & Co. without their iconic denim products including jeans and jackets, the company will continue to expand its non-denim categories such as t-shirts, footwear, sweat pants and accessories.
Over the next 10 years, Levi’s anticipates that half of its revenue will come from its non-denim ranges. These two strategies will help secure a successful future for Levi’s and as the bottom line improves so will the return on investment for investors.
As for many retailers and clothing manufacturers profits plummeted during the global pandemic, but Levi’s profits are trending back in the right direction.
What are the risks of investing in Levi’s?
Although Levi’s are in a strong position and have strategies in place to help them secure a successful future, some investors remain cautious about investing in industries that are heavily impacted by COVID-19.
As the battle against COVID-19 continues, many investors are limiting their exposure to risk by avoiding buying stock for companies who operate in industries such as retail, travel and hospitality. During the pandemic, stay at home orders and sector-specific closures of non-essential retail affected many retailers profits and left them to rely on online sales.
The sharp downturn seen by many stocks during Q2 and Q3 in 2020 has left investors wary. That said, those looking for long-term investment opportunities are less cautious as they are confident that stocks within these industries will recover from any losses as the vast majority have already demonstrated, including Levi Strauss & Co. as well as other retailers.
Is Levi’s stock a buy?
Levi’s shift in business strategy to expand its non-denim categories as well as open more direct-to-consumer NextGen stores is forecasted to help the company grow its profits over the next few years. Any improvements to a company’s bottom line can generally be seen in its share price.
But as with any investment, there is always an element of risk, and as the pandemic proved, companies within the retail industry can be hit hard. Although Levi’s stock has exceeded pre-pandemic prices which is encouraging for future returns.