StockStory Flags Three Risks Behind Its Cautious View of Levi's

StockStory said Levi's fundamentals pose too much downside risk, despite what it called a reasonable valuation. Its analysis points to slow constant-currency revenue growth, a forecast decline in free cash flow margin and lower returns on invested capital.

Levi's shares gained 8.4% over the six months covered by the article, trailing the S&P 500's 21.4% return. StockStory cited a forward price-to-earnings ratio of 12.3 and a share price of $19.69 in its assessment. As of 17:22 UTC on Sept. 28, the shares traded at $19.73, unchanged from the previous close.

The publisher said Levi's constant-currency revenue grew an average of 6.9% year over year during the prior two years. It said that pace may require lower prices or product investment to spur growth, which could weigh on near-term profitability.

Analysts' consensus estimates, as reported by StockStory, point to a free cash flow margin decline from 8.5% over the past 12 months to 4.4% over the next year. StockStory also said the company's return on invested capital fell by an average of 3.5 percentage points annually in recent years.

The publisher said it viewed Levi's valuation as reasonable but its fundamentals as a source of downside risk. It also noted the decline in returns on capital as a concern about the company's profitable growth opportunities.