Everybody’s had a Mother Hubbard moment; open the cabinet looking for something to snack on but there is not a lot there. Somebody left a single Oreo in the package. Why do people do that? Leave a single cookie, like that’s considerate or something. Nonetheless, it’s the only option so you take and eat the lone Oreo despite it being slightly stale.
Designer Brands Inc. (DBI) is this week’s lonesome Oreo of insider buying. It’s the only one in last week’s bag of buyers that appears to meet our purchase with a purpose criterion. Chairman Jay Schottenstein gobbled up more than $21 million of the retailer. (1)
We tend to see dollar amounts as a measure of conviction on the part of the buyer. Captain Obviously, a $21,000 purchase does not carry the same weight as $21 million. But wait, like a Ginsu Knife infomercial, there’s more… buying. Schottenstein acquired a little more than $16 million of DBI in March 2021.
Most of the time, we’d pass by an insider making multiple purchases in six months if the stock didn’t move up in price. However, peeking back a little further on the calendar, we see the director invested $865,405 in March 2020 at $3.07 per share. Again, size of commitment comes to mind, 800k when DBI traded for about the same as a cup of coffee at Dunking Donuts and a combined $37 million when the discount shoe retailer’s stock was priced like some fancy coffee at Starbucks.
Designer Brands is one of North America’s largest designers, producers, and retailers of footwear and accessories. You might know them as DSW Designer Shoe Warehouse, which offers brand name and designer dress, casual and athletic footwear, and accessories at discounted prices.
Chairman Schottenstein might see some value in the shoe store’s shares. In the last half decade, DBI traded with an average price to earnings ratio of 13.43 with a typical price to sales (P/S) valuation of 0.48. As we type, the P/S ratio stands at 0.36. (2) There isn’t a P/E at the moment as the company lost money in the last 12 months.
Analysts forecast Designer Brands’ topline revenue to hit $3.33 billion next year with earnings per share (EPS) of $1.36. (2) If Wall Street is correct in their projections and BBI traded at its five-year average P/E and P/S ratios, then the stock would price out at $18.26 and $24.49, respectively. The street has a one-year-price target of $19 (4). The stock trades at $13.82 as we type.
Outlook: Designer Brands Inc. (DBI) appears to have some upside potential based on Wall Street’s outlook and historical valuations. Chairman Jay Schottenstein’s large dollar commitments during the last six months are a major plus in our view.
DBI could be appropriate for investors seeking exposure to the consumer retail sector. However, with a five-year beta of 2.58 (3), only those with a strong stomach for volatility should consider the shoe company. For reference, a beta of 1 equates to the same volatility as the S&P 500. A beta of less than 1 is considered less volatile and above 1 more volatile. A score of 2.58 means DBI’s price could experience wide price swings.
1 – https://www.secform4.com/insider-trading/1319947.htm
2 – https://finance.yahoo.com/quote/DBI/analysis?p=DBI
3 – https://finance.yahoo.com/quote/DBI/key-statistics?p=DBI
4 – https://finance.yahoo.com/quote/DBI?p=DBI