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Shares of Canadian retail company Gildan Activewear (TSX:GIL)(NYSE:GIL) gained close to 11% last month and are currently trading at $52.28. The stock has risen by almost 50% in the last year and is up over 1,000% in the last decade, creating significant wealth for long-term investors.
Let’s see why GIL stock outpaced the broader markets in November and if it can keep crushing index returns in the future as well.
Gildan reported Q3 results last month
Gildan Activewear reported sales of US$802 million and adjusted earnings of US$0.80 per share in Q3 of 2021. Comparatively, Bay Street forecast Q3 sales at US$715.5 million and adjusted earnings at US$0.55 per share for the company.
Gildan president and CEO Glenn J. Chamandy stated that the record performance in Q3 was driven by improved economics of its business and its back-to-basics model, as well as an increase in consumer spending, which drove sales volumes higher.
Chamandy also emphasized that Gildan is well positioned to navigate the ongoing environment, which is inflationary, in addition to supply chain disruptions that are impacting entities across multiple sectors.
The company explained, “While supply chain tightness in certain areas and rising inflationary pressure are creating headwinds across the industry, we believe our relative positioning is strong given our vertically-integrated manufacturing platform.”
It added, “This combined with recent pricing actions implemented in the fourth quarter this year, gives us confidence that we are well positioned to manage through current inflationary pressures and to continue to be in a position to deliver on our operating margin target.”
Gildan’s sales in Q3 rose by 33% year over year and were 8% higher compared to the same period in 2019. Its adjusted operating margin stood at 21.5%, which was 930 basis points higher than Q3 of 2020 and 500 basis points higher than Q3 of 2019.
A widening bottom line allowed Gildan to end Q3 with a free cash flow of US$232 million, and this figure stood at US$478 million in the first three quarters of 2021.
What’s next for GIL stock investors?
While Gildan Activewear has derived market-thumping gains in the past, we need to analyze if it remains a top buy for long-term investors at current levels. The company managed to improve its bottom line due to a favourable product mix, a decline in promotional spending, as well as lower COVID-19-related costs. But it remains vulnerable to supply chain disruptions and an inflationary environment in the near term.
Gildan has a strong balance sheet, as it ended Q3 with US$426 million in cash and a net debt position of US$287 million. Its debt leverage ratio declined sequentially to 0.4 times in Q3 from 0.6 times at the end of Q2, providing Gildan with the required financial flexibility to navigate a volatile macro-environment.
Analysts tracking GIL stock expect sales to rise from US$1.98 billion in 2020 to US$3.67 billion in 2021 and to US$3.95 billion in 2022. Its adjusted earnings per share are also forecast to increase at an annual rate of 12% in the next five years.
Given the company’s market cap of $8 billion, Gildan Activewear stock is valued at a forward price-to-2022-sales multiple of two and a price-to-earnings multiple of 14 times, which is quite reasonable given its growth forecasts and a dividend yield of 1.51%.