We came across a bullish thesis on Urban Outfitters (URBN) on Value Don’t Lie’s Substack by Value Don’t Lie. In this article we will summarize the bulls’ thesis on URBN. Urban Outfitters share was trading at $35.43 as of Sept 9.
A customer shopping in a department store, browsing through racks of clothing.
Urban Outfitters (URBN), a long-established apparel retailer founded in 1970, is currently trading at less than 12x price-to-earnings (P/E) and 5x EBITDA, with a substantial net cash position comprising 22% of its market cap. This undervaluation presents a compelling investment opportunity, particularly given URBN’s strong fundamentals, growth potential, and effective capital allocation. The company operates three primary brands: Urban Outfitters, Anthropologie, and Free People. Among these, Anthropologie and Free People have exhibited impressive long-term growth, compounding at an average rate of 5.8% since 2013. Despite being overshadowed by the underperformance of the Urban Outfitters brand, which has seen its impact on total sales decline from 48% in 2013 to 26% in 1H25, these brands continue to drive the company’s overall growth. Over the past 12.5 years, URBN’s total sales have grown at an annual rate of 5.8%, demonstrating resilience even during challenging periods such as the COVID-19 pandemic.
URBN has also shown a strong track record of effective capital allocation, generating over $1.7 billion in free cash flow (FCF) from FY15 to FY24. Remarkably, the company converted approximately 88% of its net income to FCF during this period, which is impressive given its ongoing expansion efforts. While many growing retailers are less cash generative due to capital expenditures on new stores and inventory growth, URBN has managed to strike a balance between growth and shareholder returns. This balance is evident in the company’s significant buyback activity, with $1.85 billion worth of shares repurchased since FY15, and over $8 per share in cash and investments currently on the balance sheet. After a period of slower buybacks, recent activity suggests that repurchase programs may be picking up again, further enhancing shareholder value.
URBN’s current valuation is particularly attractive when compared to its peers. With trailing earnings per share (EPS) of $3.27 and EBITDA of $525 million, the current stock price of $39 per share represents less than 12x earnings and 5x EBITDA. This positions URBN as one of the more affordable options in its sector, where the median peer P/E ratio is approximately 15x. Despite being undervalued, URBN remains a top-tier revenue grower with a strong balance sheet and shareholder-friendly management. The combination of insider (founder) ownership, controlled growth, a substantial cash reserve, and appealing valuation checks many boxes for potential investors. Fashion retail is inherently unpredictable and highly competitive, but URBN’s brands have demonstrated sustainable growth over decades, suggesting they are far from being a passing fad. Considering its fundamentals, URBN could be valued at 14-15x trailing EPS, translating to a target price of $46-49 per share. Given the company’s cash position and growth prospects, a valuation closer to its peers could mean an even higher target, potentially making URBN a unique mid-cap investment opportunity with multiple catalysts for upside.
Urban Outfitters is not on our list of the 31 Most Popular Stocks Among Hedge Funds. As per our database, 30 hedge fund portfolios held URBN at the end of the second quarter which was 36 in the previous quarter. While we acknowledge the potential of URBN 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 URBN 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.
