Headquartered in London, Farfetch Limited (FTCH - Get Rating) offers a global online marketplace for luxury fashion goods. The company operates through three broad segments: Digital Platform; Brand Platform; and In-Store.

The stock is currently trading at a cheap valuation. In terms of its forward EV/Sales, FTCH is trading at 0.83x, 26.1% lower than the industry average of 1.12x. The stock’s forward Price/Sales multiple of 0.64 is 22.7% lower than the industry average of 0.83. In terms of forward Price/Book, it is trading at 2.46x, 3.5% lower than the industry average of 2.55x.

However, FTCH missed the consensus EPS estimate for the third quarter by 18.3%. Although its revenue increased 1.9% year-over-year to $593.36 million for the same quarter, it marginally missed the analysts’ estimate.

The stock has declined 88.3% year-to-date and 47.9% over the past month to close its last trading session at $3.90. It is trading lower than its 50-day moving average of $7.11 and 200-day moving average of $9.27. Additionally, it is trading just 7.1% higher than its 52-week low of $3.64.

Here are the factors that could affect FTCH’s performance in the near term:

Poor Bottom Line

For the fiscal third quarter that ended September 30, FTCH’s operating loss increased 106.6% year-over-year to $218.48 million. Profit after tax declined 135.7% from the prior-year period to negative $274.90 million. Adjusted loss per share came in at $0.24, up 71.4% year-over-year.

Unfavorable Analyst Estimates

The consensus EPS estimate of negative $0.41 for the current quarter (ending December 2022) indicates a significant year-over-year decline. Likewise, the consensus revenue estimate for the same quarter of $623.12 million reflects a decline of 6.4% from the prior-year period.

Moreover, Street EPS estimate for the next quarter (ending March 2023) of negative $0.44 represents a 122.8% year-over-year decline.

Mixed Profitability

FTCH’s trailing-12-month gross profit margin of 45.41% is 27.7% higher than the industry average of 35.58%. However, its trailing-12-month EBITDA margin of negative 13.98% compares to the industry average of 11.11%.

Its trailing-12-month ROTA of 45.03% is considerably higher than the industry average of 4.45%, while its ROTC of negative 35.19% compares to the industry average of 6.59%.

POWR Ratings Reflect Bleak Prospects

FTCH’s POWR Ratings reflect the company’s bleak outlook. The stock has an overall F rating, equating to a Strong Sell in our proprietary rating system. The POWR Ratings are calculated by considering 118 different factors, each weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. FTCH has a Growth grade of F, in sync with its bleak bottom-line growth in the last quarter.

The stock has a D grade for Stability, consistent with its five-year beta of 2.76. It has a Sentiment grade of D, in sync with bleak analyst estimates.

In the 58-stock Internet industry, it is ranked #56. The industry is rated F.

Click here to see the additional POWR Ratings for FTCH (Value, Momentum, and Quality).

View all the top stocks in the Internet industry here.

Bottom Line

Although the stock looks cheap at the current price level, its bleak bottom-line growth in the last reported quarter is concerning. With the stock trading below its moving averages and analysts remaining pessimistic about the company’s revenue and earnings growth, FTCH might be best avoided now.

How Does Farfetch Limited (FTCH) Stack up Against Its Peers?

While FTCH has an overall POWR Rating of F, one might consider investing in its industry peers, Travelzoo (TZOO - Get Rating), trivago N.V. (TRVG - Get Rating), and Yelp Inc. (YELP - Get Rating), which have an overall B (Buy) rating.

FTCH shares were trading at $3.80 per share on Thursday morning, down $0.10 (-2.56%). Year-to-date, FTCH has declined -88.63%, versus a -18.43% rise in the benchmark S&P 500 index during the same period.

About the Author: Anushka Dutta

Anushka is an analyst whose interest in understanding the impact of broader economic changes on financial markets motivated her to pursue a career in investment research. More...

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