Prior to yesterday’s large price decline, Macy’s stock had jumped almost 50% since its March low. Contrary to popular belief, our analysis suggests it has more upside. It has accumulated hefty free cash flow suggesting it should be able to meet its debt obligations and maintain its dividend payments, a boon for investor confidence. The second highest revenue earner in the department store industry still has a positive ROE and boasts the third widest net profit margin in its group.
Meanwhile, the chart below demonstrates how Macy’s quarterly stock price momentum is inversely correlated with its quarterly inventory growth (inventory growth is shown inverted). This makes sense since leaner inventory levels imply that the firm is incurring less storage costs, and vise versa.
Note: Both Macy’s stock price and Macy’s inventories are shown as a quarterly rate-of-change.
*Inventory growth is shown inverted.
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