Although it may seem like there’s no moat, I believe the company actually has a durable competitive advantage in its ability to keep costs low. Generic t-shirts are a commodity, after all, and the company with the best operations and supply chain that can produce the most shirts at the lowest price will be the king.
Gildan has been a laggard for nearly two years now and is still down over 12% from its July 2015 high. More recently, the stock has started to rally, and it appears that Gildan will not be a cheap stock for much longer.
Gildan is a boring business that has a fairly predictable future. People will always need unbranded generic clothing, and this is very unlikely to change over the next few decades. Sure, fashions will change, but Gildan is mostly immune to changes in fashion, because t-shirts and hoodies are pretty much timeless.
Why is boring and predictable a good trait?
We live in an age where technology is a big part of everyone’s lives. High-flying tech stocks are fast moving, and it’s very difficult to predict what will happen in a few years from now, let alone a decade from now. With unpredictability comes a huge amount of growth, but it also comes with higher risk, especially if your “prediction” for the future of a company is incorrect.
It’s not just technology stocks that are hard to predict. Technology has become a disruptor to other industries as well. Just look at the retail sector. The rise of e-commerce has hurt many traditional brick-and-mortar retail businesses. These retail businesses were low tech and generally known as boring, but that’s all changed. These businesses have to adapt to the new age or get left behind.
It’s getting harder to find businesses that are immune to such disruptions, even in traditional slow-growth industries. Gildan is one business that I believe will easily adapt to a changing environment.
The management team is top tier and determined to drive operational efficiencies. It’s going to very difficult for a competitor to produce high-quality generic clothing items in huge amounts for rock-bottom prices.
What about value?
Gildan trades at an 18.11 price-to-earnings multiple and a 3.1 price-to-book multiple, both of which are lower than the company’s five-year historical average multiples of 24.8 and 3.3, respectively.
The stock is cheap, and it’s a stable, boring business that you can feel comfortable holding for many years to come. Even with the rise of industry disruptors, you’re unlikely to lose your shirt in a hurry with Gildan.
Stay smart. Stay hungry. Stay Foolish.
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Fool contributor Joey Frenette has no position in any stocks mentioned.