One-glance verdict
Undervalued
$64.73 our estimate vs market $2.31
96% below our estimate, below the bear case
Fundamentals snapshot
The Cato Corporation
CATO · NYQ · Consumer Cyclical · Apparel Retail
Current price
$2.31
52-week range
$2.28 - $4.04
Market cap
$46.00M
Balance sheet
Distressed
-122.37x Concerning
Net debt $44.86M. Interest coverage shows how many times profit covers the interest bill.
What stands out
1 Reward
3 Risks
1 rewards · 3 risks
- Reward Free cash flow was positive in 5/10 years.
- Risk Net debt grew 66.6% over 3 years.
- Risk Return on equity was -3.3% last year — the company lost money on shareholders' equity.
- Risk Operating margin compressed from -0.3% to -0.6% over 3 years.
What this company does
The Cato Corporation
The Cato Corporation is a clothing store chain, mainly in the Southeast, that sells affordable fashion for women, men, and kids. Most of their money comes from selling clothes through their stores and online, but they also make a little from offering credit cards to shoppers, which helps them bring in more sales. This matters because it shows how they make money from both selling things directly and from services, giving them a couple of ways to earn cash.
How the company got here
The Cato Corporation started in 1946 as a small women's clothing store in North Carolina. Over the decades, it grew by opening more stores, focusing on offering affordable, fashionable clothing. A key part of its strategy has been to expand its reach primarily in the southeastern United States. The company also recognized the importance of offering credit options to its customers, which has been a consistent part of its business model.
What it actually does
Cato is a retailer that sells clothes and accessories for women, men, and children. You can find everything from everyday casual wear to outfits for work or special occasions. They also sell shoes, jewelry, and handbags. Cato operates physical stores and also sells items through its websites. They aim to provide trendy items at accessible prices for a wide range of customers.
Retail
This is Cato's main business, where it sells clothing and accessories directly to shoppers. The company operates a variety of store formats and e-commerce websites under different brand names like Cato, It's Fashion, and Versona. These stores offer a wide selection of apparel for women, men, and kids, including sportswear, dresses, and outerwear, as well as accessories like shoes and jewelry. This segment represents the largest portion of Cato's overall sales.
Credit
The Credit segment involves offering financial services to Cato's customers, primarily through branded credit cards. This allows shoppers to make purchases and pay for them over time, which can encourage more frequent and larger purchases. This segment also includes services like layaway plans, further enhancing customer purchasing power and loyalty. While smaller than the retail sales, this segment provides an additional revenue stream and supports the core retail operations.
What management is betting on now
Cato's management is focused on navigating the competitive retail landscape by offering value and convenience to its shoppers. They are likely concentrating on optimizing their store locations and improving their online shopping experience to attract and retain customers. A key priority is managing inventory effectively to ensure they have the right styles at the right prices. They also aim to leverage their credit offerings to encourage customer spending and build loyalty.
Price history
How the share price has moved
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Earnings history
Last 8 quarters — what happened
Click any quarter to read the call summary and what the numbers say.
FY2025 Q4
$-23.81M
FY2026 Q1
$-7.84M
FY2026 Q2
$2.85M
FY2026 Q3
$10.43M
FY2026 Q4
$-12.93M
FY2027 Q2
$6.98M
FY2027 Q3
$13.14M
Revenue
$165.50M
Net income
$1.15M
Diluted EPS
0.06
Operating cash flow
$14.49M
Free cash flow
$13.14M
Fetching…
Sources
Revenue
$171.10M
Net income
$9.31M
Diluted EPS
0.47
Operating cash flow
$8.05M
Free cash flow
$6.98M
Fetching…
Sources
Revenue
$155.40M
Net income
$-5.19M
Diluted EPS
-0.28
Operating cash flow
$-12.39M
Free cash flow
$-12.93M
Fetching…
Sources
Revenue
$176.51M
Net income
$6.83M
Diluted EPS
0.35
Operating cash flow
$11.77M
Free cash flow
$10.43M
Fetching…
Sources
Revenue
$170.24M
Net income
$3.31M
Diluted EPS
0.17
Operating cash flow
$3.87M
Free cash flow
$2.85M
Fetching…
Sources
Revenue
$157.91M
Net income
$-14.05M
Diluted EPS
-0.73
Operating cash flow
$-6.48M
Free cash flow
$-7.84M
Fetching…
Sources
Revenue
$146.17M
Net income
$-15.07M
Diluted EPS
-0.79
Operating cash flow
$-22.10M
Free cash flow
$-23.81M
Fetching…
Sources
Is it cheap or expensive?
Fair value $64.73 vs current price $2.31
Our most-likely fair value is $64.73 a share — about 2,702.0% above today's price of $2.31, so the stock currently looks cheap (undervalued).
Is it drowning in debt?
Distressed
Net debt $44.9M. Interest coverage -122.4x.
Net debt
$44.86M
Interest coverage
-122.37x
The Cato Corporation's profit covers its interest bill about 0.0 times over. which is weaker than most peers shown here and 3 peers sit below 1x, which is the danger zone where profit does not fully cover the interest bill.
Distressed
Worse cushion
Baseline
Better cushion
CATO
BASELINE
The Cato Corporation
Total debt $138.63M Interest coverage -122.37x This is the baseline the peer rows are being compared against.
Total debt $224.85M Interest coverage -20.50x Neither company has much profit cushion over interest right now.
Total debt $622.55M Interest coverage -1.67x Neither company has much profit cushion over interest right now.
Total debt $206.80M Interest coverage -54.67x Neither company has much profit cushion over interest right now.
Total debt $219.40M Interest coverage 4.92x This peer still has a real interest-payment cushion, while CATO does not.
What you should know
The case for and against CATO
1 Reward
3 Risks
Rewards
-
Free cash flow was positive in 5/10 years.
Risks
-
Net debt grew 66.6% over 3 years.
-
Return on equity was -3.3% last year — the company lost money on shareholders' equity.
-
Operating margin compressed from -0.3% to -0.6% over 3 years.
The numbers
All the key metrics, grouped by purpose
Tap any ? icon to learn what it means.
Valuation
How expensive the stock looks
P/E (TTM)
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Forward P/E
1.78x
P/B
0.26x
P/S
0.07x
EV/EBITDA
-16.28x
PEG ratio
1.17x
Profitability
How much profit each dollar creates
Gross margin
33.4%
Operating margin
-0.6%
Net margin
-0.9%
ROE
-3.3%
ROA
-2.1%
Health
Liquidity and balance-sheet strength
Debt / equity
0.83x
Current ratio
1.36x
Quick ratio
0.74x
Total debt
$138.63M
Total cash
$93.77M
Growth
How the business has been compounding
Revenue TTM
$643.67M
Revenue 5Y CAGR
-4.0%
EPS TTM
-0.31
EPS 5Y CAGR
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Cash flow
How much cash the business throws off
Operating CF TTM
$5.44M
Free CF TTM
$-5.22M
FCF margin
-0.8%
Dividend
Shareholder payout
Yield
0.0%
Payout ratio
147.8%
Last ex-div date
2024-09-16