Gildan Activewear Inc.

Gildan Activewear Inc. (TSX: GIL) is a vertically integrated designer and manufacturer of basic apparel. Its primary market is the sale of blank T-shirts to wholesalers and printers (printwear). Gildan also sells branded clothing through retail and direct-to-consumer channels. 

Why Should Investors Book Profit?

• Facing labor shortage: The company is facing U.S. labor shortage, which have been affecting yarn production and its ability to rebuild higher inventory levels.
• Disruption in supply chain: The company witnesses a tightness in raw material inputs and transportation-related factors globally, which are creating inflationary pressure.
• Stretched Valuation: GIL shares are available at an NTM EV/Sales multiple of 2.7x compared to the industry (Consumer Cyclicals) median of 1.4x. This implies that the shares are overvalued against the industry. The matrix below reflects that the company is overvalued against the industry on many multiples.

• Higher Cash Cycle days: The company’s Cash Cycle (Days) is higher compared to the industry, implying the company takes more days to convert its inventory to cash. Currently, its Cash Cycle is at 165 days against the industry median of 95.3 days.

• Trading above the upper band of the Bollinger Bands®: Recently, the stock witnessed a healthy rally on the daily price chart and has moved above the upper band of the Bollinger band, indicating the stock is perhaps overbought and due for a price correction or a consolidation. Furthermore, the momentum oscillator RSI (14-Period) is trading at ~74.46 levels, also indicates that the stock is in overbought zone and there is a possibility of price consolidation or correction.

Technical Price Chart, Source: REFINITIV, Analysis by Kalkine Group 

Valuation Methodology (Illustrative): EV to Sales 

Stock recommendation

The company posted robust results and is encouraged by the recovery it has seen in its business in North America, although the recovery outside of North America remains weak. Additionally, it is facing U.S. labor shortage and disruption in supply chain affecting its ability to rebuild higher inventory levels and putting inflationary pressure. Furthermore, the group’s higher Cash Cycle days against the industry raises serious concerns. Moreover, the stock is trading on the stretched valuations against industry on many fronts. Therefore, based on the above rationale and valuation, we recommend a “Sell” rating on the stock at the closing price of CAD 48.02 on August 13, 2021.

*The reference data in this report has been partly sourced from REFINITIV.

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