We came across a bullish thesis on Gildan Activewear Inc. (GIL) on ValueInvestorsClub by komrade.kapital. In this article we will summarize the bulls’ thesis on GIL. Gildan Activewear Inc. shares were trading at $39.38 when this thesis was published, vs. closing price of $44.06 as of Sept 10.
A store shelf lined with t-shirts, jackets and pullovers.
Gildan, established in 1984 by Glenn Chamandy and his brother Greg Chamandy, stands as a major player in the wholesale blank apparel market, which encompasses t-shirts, underwear, fleece, and socks. Headquartered in Montreal, Canada, Gildan has evolved into a vertically integrated, low-cost manufacturer of blank garments, which are later customized for various end markets. Its primary clientele includes corporations, event organizers, sports teams, and academic institutions, while major retailers like Walmart also source private-label socks and underwear from Gildan.
The company’s dual-channel distribution strategy divides its operations between distributors, who account for 75% of sales, and direct retail sales, which make up the remaining 25%. Gildan’s significant market share in open-end basic t-shirts—approximately 80%—is underpinned by its ability to consistently lower per-unit manufacturing costs. This competitive advantage has allowed Gildan to dominate this segment, pushing competitors such as Fruit of the Loom and Hanes out of the market. Gildan’s success in reducing per-unit costs by 50% since its IPO has resulted in substantial revenue growth, with a compounded annual growth rate of 12.9%, reaching $3.2 billion in recent years.
The blank apparel industry, valued at around $12 billion in North America, features low fashion risk due to its reliance on timeless, customizable products. Gildan’s position in this market is strengthened by its dominance in open-end t-shirts and growing share in ring-spun fashion t-shirts and fleece apparel. The ring-spun segment, valued at $2 billion, presents a key growth opportunity. Gildan’s investment in a new state-of-the-art facility in Bangladesh is expected to lower production costs significantly, offering a substantial competitive edge over rivals such as Bella+Canvas and Next Level, both of whom are facing operational and financial challenges.
In the fleece apparel market, valued at $5 billion, Gildan’s strategic acquisition of Frontier Yarns in 2022 has provided it with control over 90% of the U.S. MVS yarn supply, enhancing its cost efficiency and vertical integration. This positions Gildan to capture increased market share in the fleece segment, mirroring its success in open-end t-shirts.
The recent overhaul of Gildan’s board of directors, following a successful activist campaign by Browning West, marks a pivotal shift in capital allocation and strategic direction. This change is expected to drive aggressive market share gains and enhanced shareholder value. At a current share price of $39, Gildan appears undervalued relative to its growth potential. With projected EPS growth from $4 in 2025 to $6.50-$7.20 by 2029, and a historical average EPS multiple of 16x, Gildan’s stock could be valued between $104 and $115, reflecting an attractive investment opportunity.
However, risks include geopolitical instability in manufacturing regions and shifts in market preferences that could impact Gildan’s operational efficiency and profitability. Despite these challenges, Gildan’s robust market position and strategic initiatives offer a compelling case for significant future growth.
Gildan Activewear Inc. is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 22 hedge fund portfolios held GIL at the end of the second quarter which was 27 in the previous quarter. While we acknowledge the potential of GIL as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter timeframe. If you are looking for an AI stock that is as promising as GIL but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article was originally published at Insider Monkey.
