Yesterday’s article talked about the difficulties involved with trading shares in a stock on the first day of its IPO. You can read that article here. Today, we are going to try to use the price to earnings ratio to value Birkenstock and see if it is over or undervalued. 

A stock’s P/E is simply the price per share divided by the company’s earnings per share. If you compare two similar companies’ P/E ratios, the company with the higher ratio can be thought of as more expensive than the other. That doesn’t mean you should just look for low P/E ratios to find deals. Often a stock that trades at a lower P/E is priced that way for a good reason. It is like comparing the price of a fancy sports car to my broken down used van. The fancy sports car’s price is higher because it is faster, newer, rarer, more reliable, and more desirable. 

Birkenstock’s P/E Ratio 

Today, BIRK traded down again closing at 37.55, making its P/E ratio 41.26. There has been a tremendous amount of news coverage declaring Birkenstock’s IPO overpriced. We can check by comparing 41.26 to other public companies P/E. 

Crocs (CROX) is the closest comparable public company. Both are vertically integrated specialty footwear brands that sell both directly to the consumer and through other retail outlets. Crocs P/E ratio is 7.95. That is 5 times lower than BIRK. 

Does Birkenstock deserve to be more expensive compared to Crocs? Maybe? Crocs has a bunch of debt on its balance sheet where Birkenstock will have none after the IPO. Birkenstock is more of a fashionable brand where Crocs have always been more comfort oriented. Maybe Birkenstock should trade at a little premium, but, more than 5 times is very expensive.

We can also compare Birkenstock’s P/E to those in its industry. The footwear and accessories industry has a total of 12 different companies in it. The weighted average PE ratio for the industry is 26.56. Birkenstock’s stock price would have to go down to $24.17 for BIRK’s P/E to be equal to the average. That is a decrease of 36%. Below is a list of all the companies in the footwear and accessories industry.

Company – Symbol – P/E

• Nike – NKE – 30.63
• Deckers Outdoor Corporation – DECK – 24.67
• Skechers – SKX – 15.99
• Birkenstock – BIRK – 41.26
• Crocs – CROX – 7.95
• Steven Madden – SHOO – 14.81
• Caleres – CAL – 6.62
• Wolverine World Wide – WWW – NA
• Weyco Group – WEYS – 7.72
• Vera Bradley – VRA – NA
• Rocky Brands – RCKY – 10.19
• Forward Industries – FORD – NA
• American Rebel Holdings – AREB – .13

Summary

Birkenstock is as overvalued as advertised if you rely on P/E ratios. These traders will look for it to trade down to the industry average or at least $24.17.