The past six months have been a windfall for Boot Barn’s shareholders. The company’s stock price has jumped 106%, hitting $191.96 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.
Is there a buying opportunity in Boot Barn, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free for active Edge members.
Why Is Boot Barn Not Exciting?
We’re happy investors have made money, but we're cautious about Boot Barn. Here are three reasons you should be careful with BOOT and a stock we'd rather own.
1. Same-Store Sales Falling Behind Peers
Same-store sales show the change in sales for a retailer's e-commerce platform and brick-and-mortar shops that have existed for at least a year. This is a key performance indicator because it measures organic growth.
Boot Barn’s demand within its existing locations has been relatively stable over the last two years but was below most retailers. On average, the company’s same-store sales have grown by 1.2% per year.
2. Fewer Distribution Channels Limit its Ceiling
With $1.99 billion in revenue over the past 12 months, Boot Barn is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers. On the bright side, it can grow faster because it has more white space to build new stores.
3. Free Cash Flow Margin Dropping
Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Boot Barn’s margin dropped by 3.9 percentage points over the last year. This decrease came from the higher costs associated with opening more stores.
Final Judgment
Boot Barn isn’t a terrible business, but it isn’t one of our picks. Following the recent surge, the stock trades at 28.8× forward P/E (or $191.96 per share). This valuation tells us a lot of optimism is priced in - we think there are better opportunities elsewhere. We’d suggest looking at the most dominant software business in the world.
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