Shares of Gildan Activewear (TSX: GIL) have been defying the odds, blasting off close to 120% in the last two years, as most other apparel names have fallen under considerable pressure. Indeed, the apparel scene is a tough place to be unless you’re an efficient operator who knows how to retain (and even gain) additional market share.
Gildan isn’t exactly the red-hot, fashionable apparel play that Wall Street has been raving about. It’s more of an under-the-radar kind of deep-value play that’s stealthily doubled in just under a two-year timespan. Indeed, you may own several pieces of Gildan clothing without even knowing about it.
For those unfamiliar with the firm, it’s the maker of essential pieces of clothing, from t-shirts to hoodies and even underwear. If you want to mass-produce a certain printwear t-shirt or something similar at an affordable price, Gildan is one of the top places to look. Undoubtedly, essential articles of clothing really never go out of style.
And with much emphasis on operating efficiencies, Gildan has been able to produce on a massive scale while keeping expenses minimized. In fact , it’s Gildan’s efficient operations that have acted as an economic moat of sorts for the firm. And it’s this moat that could continue to keep Gildan’s cash flows secure as other corners of the apparel market face headwinds and other challenges that have weighed heavily on some of the biggest names in the industry.
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The Hanesbrands deal bolsters the fundamentals
More recently, Gildan added to its moat when it bought popular underwear maker Hanesbrands, a move that not only could give revenues a massive jolt but also could be rich with considerable synergies. Indeed, Hanesbrands faced numerous issues that I think Gildan’s management can easily solve. Of course, time will tell how value creative the Hanes deal will be.
In any case, the move turns Gildan into an absolute force in the retail scene. Arguably, Gildan’s ability to pass low costs onto its clients could help it perform well when economic growth runs out of steam and consumers become more cost-conscious. Indeed, the consumer has become a heck of a lot more value-oriented in recent years, thanks in part to the wave of inflation that might just get worse as interest rates continue to fall from current levels. With one of the best value propositions in its corner of apparel, I view the name as poised to continue to do well.
Gildan stock still looks incredibly cheap
Today, the stock trades at a very modest 19.6 times trailing price-to-earnings (P/E) despite hovering around its new all-time highs just north of $85 per share.
Undoubtedly, shares of GIL are as much of a value play as it is a momentum play. Looking into the near future, shares appear even cheaper, going for around 13.3 times forward P/E. While apparel brands like Hanesbrands and Gildan may not be exciting, they are incredibly cash-flow generative, and I think there’s plenty of support for the current rally going into the end of the year.
