One-glance verdict
Undervalued
$64.73 our estimate vs market $2.34
96% below our estimate, below the bear case
Fundamentals snapshot
The Cato Corporation
CATO · NYQ · Consumer Cyclical · Apparel Retail
Current price
$2.34
52-week range
$2.30 - $4.72
Market cap
$46.59M
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 runs clothing stores that sell affordable women's fashion and accessories, mostly in the southeastern United States, under names like Cato and Versona. The company makes the vast majority of its money from selling these items, with a small portion coming from its own customer credit card services. For Cato to succeed, it must manage its profitability in a highly competitive market, meaning it needs to keep its margins (the portion of each sale that is actual profit) healthy by consistently attracting shoppers to its stores.
How the company got here
The Cato Corporation was founded in 1946 by Wayland Cato, who opened the first stores with his sons in Charlotte, North Carolina. The company grew steadily, focusing on providing fashion in towns primarily in the southeastern United States. It has gone from a private to a public company and back, and in the early 1990s, it avoided potential bankruptcy by updating its clothing and adopting a new discount pricing strategy. This focus on value has remained a core part of its identity, with most of its stores located in strip shopping centers, often near national discount stores.
What it actually does
Cato is a specialty retailer that sells women's fashion and accessories at low prices. You'll find their stores, like Cato, Versona, and It's Fashion, mostly in strip shopping centers. They sell a wide variety of clothing for different occasions, from casual to career, as well as shoes, jewelry, and handbags. A lot of the merchandise is sold under Cato's own private labels, meaning they design and contract manufacturers to produce the items specifically for their stores.
Retail
This is the company's main business, making up the vast majority of its sales. It involves selling apparel and accessories to customers through its physical stores and websites. Cato operates several different store brands to target different customers: 'Cato' and 'Cato Plus' offer fashion for junior, misses, and plus-size women; 'It's Fashion' and 'It's Fashion Metro' provide trendier looks for the whole family; and 'Versona' is focused on accessories like jewelry and handbags alongside apparel. Customers pay for these goods at the checkout counter or online, just like in any other clothing store.
Credit
This is a much smaller part of the company that supports the retail business. Cato offers its own branded credit card, which allows customers to buy items now and pay for them over time. The company makes money from this segment through finance charges (interest on unpaid balances) and late fees. While it's not a huge revenue generator, making up a small percentage of total sales, it encourages customer loyalty and makes purchasing more convenient.
What management is betting on now
The company's main goal is to be the top choice for fashion and value in its local markets. Management is focused on differentiating Cato from department stores and other specialty shops by offering a unique mix of fashionable, private-label products at low prices every day. They are also concentrating on creating a pleasant shopping experience with good customer service to keep shoppers coming back. In response to changing shopping habits, the company is also closing underperforming stores to focus on more profitable locations and its online presence.
Price history
How the share price has moved
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Loading price history…
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 $2.34
Our most-likely fair value is $64.73 a share — about 2,666.1% above today's price of $2.34, 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)
—
Forward P/E
1.80x
P/B
0.26x
P/S
0.07x
EV/EBITDA
-16.63x
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
-0.29
EPS 5Y CAGR
—
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
—
Payout ratio
0.0%
Last ex-div date
2024-09-16