1. VOL 1. ISSUE 2
11
1
B
Urban Outfitters vs. Francesca’s
SMIF Analyst Newsletter
By Lindsey Harmon
Canyon, TX 79016
Lindsey.harmon07@yahoo.com
(806)-886-8225
Running Head: AN ANALYSIS OF URBN & FRAN
2
1
3
Executive Summary
Table of Contents
4
6
7
5
Executive Summary
Macroeconomic Analysis
Industry Analysis Pg. 3-5
Urban Outfitters and Francesca’s are
both participants in the apparel
industry. The apparel industry is
relatively volatile. This is due to the
many uncontrollable factors that can
potentially influence it. A few
factors that will be of concern to
potential investors in the apparel
industry in the coming quarters are
the cost of material and an increase
in minimum wage. In order to be
less infected by these variables, both
companies will need to think of a
way to cut expenses to offset the
increase in the cost of production.
Fortunately, for potential investors
URBN and FRAN, both companies
do an admirable job at staying ahead
of the business cycle. However,
URBN has an advantage over
Francesca’s because URBN has a
substantially larger consumer base
in that they sell to both women and
men, while FRAN only sells to
women. In addition to this, URBN
operates through four additional
clothing stores: Free People,
Anthropology, BHLDN, and
Terrain. This provides URBN with a
degree of safety in economic
downturns. One can attribute this to
diversity in consumers. When one clothing
store is doing poorly, overall sales will be
less affected. In addition to URBN’s
domestic sales, one can expect
international sales to increase in the
coming quarters. One can attribute this to
URBN’s presence in the e-commerce
segment of distribution. URBN also has an
advantage in the fact that consumers
associate their products with high-end
apparel. This serves as an advantage to
URBN, because while consumers associate
their products with high-end apparel, it is
widely apparent that URBN is cheaper
when compared to competitors. While
URBN has far greater sales than FRAN,
FRAN has a much higher NPM. This
means FRAN is doing a better job at
cutting expenses. This is a desirable
characteristic during an economic
downturn. However, while FRAN has a
higher NPM, URBN has a significant
amount of liquidity over FRAN. This will
offset URBN’ lower NPM in an ailing
economy. URBN has much higher EPS
than FRAN. This is positive news to
potential investors. This is because it
indicates that URBN is actually turning
investors’ money into profit. Both firms’
P/E ratios have fallen significantly within
the past year. In addition to this, both
firms’ P/E ratios are less than the historical
trend and the industry average. This
indicates that both firms’ are undervalued.
This is extremely positive for both firms.
However, URBN is trading at a far lower
P/E ratio when compared to PNRA and
based on the historical trend. This implies
that while both are slightly undervalued,
URBN is far more undervalued than
FRAN. This implies that there is
greater profit to be earned by
investors in URBN than investors in
FRAN are. The extreme drop in P/E
by URBN is attributable to the
recent sharp decline in sharp price
discussed on page 8. In order for a
stock to be a good investment, the
holding period return must exceed
the required rate of return. Both
URBN and FRAN have a required
return of 8.1%. However, while
URBN’s return is far greater than
the required rate, FRAN’s return is
less than the required rate. This
indicates that URBN is undervalued
and a buy (or hold), and FRAN is
overvalued and a sell. In addition to
this, as concluded from the
sensitivity analysis, URBN is far
less sensitive to a drop in EPS and
P/E. This is extremely desirable.
Based on the data gathered, URBN
is the most profitable investment.
This is determined by the fact that
URBN is extremely undervalued (as
determined by both the technical
and fundamental valuation), and
when price appreciates back to trend
investors can expect a substantial
return. In addition, after price goes
back to trend, investors can expect a
high degree of safety. The large
consumer base, high liquidity, high
sales, and the current undervalued
nature of the stock are the sole
influence on safety felt by URBN.
Fundamental Valuation
Pg. 6
Corporate Governance Pg.
7
Relative Valuation Pg. 7-8
Technical Analysis Pg. 8-9
8 References Pg.10

2. AN ANALYSIS OF URBNAND FRAN
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Vol. 1 Issue 2
Macroeconomic variables affecting
consumption are an inevitability that
each company must face. There are
many economic variables, but a few
that are most likely to influence the
apparel industry are unemployment
and disposable income. As one can
easily see, the variables listed as a
main factor in consumption of
Urban Outfitters and Francesca’s are
predominately demand variables.
One can attribute this to intense
competition faced by participants
in the apparel industry. With
increased competition, each
consumer has the option of
choosing an alternative if
something taking place within the
company does not suit their needs
(whether that may be price
changes or company policy). In a
booming economy where
consumers have ample amount of
spending money (disposable
income), they will be more likely
to buy from a more expensive
apparel store. However, in a
downturn, they will likely switch
from relatively expensive apparel
to a cheaper source of clothing
due to a decline in disposable
income. Tutor 2u economic blog
confirms this information in the
graph provided in Figure 2.1. The
graph depicts the correlation of
disposable income and consumer
spending. As disposable income
falls, one can see that
consumption will likely fall.
Urban Outfitters could be the
caveat to this. Urban Outfitters
has the “feel” of higher end
clothing, while relatively cheap
alternative when compared to
actual high-end apparel. In an
economic downturn, this could
serve as an advantage to Urban
Outfitters. Urban Outfitters sells
clothing to both men and women,
while Francesca’s sells only to
women. Urban Outfitters
currently has a larger customer
base than that of Francesca’s.
This is due to the fact that they
not only sell through their brand
name of Urban Outfitters, but
they also sell through four other
high end clothing stores: Free
People, Anthropology, Terrain,
and BHLDN (S&P Net
Advantage, 2016). Through each
selling canal utilized by Urban
Outfitters, the company targets a
different consumer base. Each of
the four Urban Outfitters affiliates
targets a different demographic.
This demographic is age. While
Urban Outfitters has a younger
consumer base, Anthropology and
Free People target both younger
and older consumers (Mergent
Online, 2016). Francesca’s is a
chain of boutiques, which has
expanded throughout 47 states
since the late 1990’s (Yahoo
Finance, 2016). Another positive
characteristic in both Urban
Outfitters and Francesca’s is their
presence in the online market.
Both companies have a large
consumer base through online
stores. According to The Wire,
online shopping tends to be less affected by
recessions. In fact, according to The Wire,
online shopping actually did better after the
2008 recession (The Wire, 2011). This is
beneficial information to potential investors
in Urban Outfitters and Francesca’s. It
indicates that in an ailing economy these
two companies have a level of protection
due to their involvement in E-Commerce. In
addition to this, both companies will be
protected by a fall in disposable income due
the fact that consumers have a tendency to
view both companies as cheaper high-end
apparel (S&P Net Advantage, 2016)
Macroeconomic Analysis Figure 2.1 (Tutor 2u Economic
Blog, 2016).
According to Alyssa Oursler of Investor
Place, three siblings Chong Yi, Kyong Gill,
Insuk Koo and a friend named John De
Merritt created Francesca’s in 1999 in
Houston, TX (InvestorPlace, 2016).

3. AN ANALYSIS OF URBNAND FRAN
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Vol. 1 Issue 2
Industry Analysis
Industry Threats
Each industry must cope with a
different form of threat that could
possibly be detrimental to the success
of the industry. When choosing a
potential investment, one must consider
the level at which the industry could be
negatively affected by factors that are
uncontrollable. To provide a margin of
safety, one must be mindful in
choosing stock by choosing stocks that
are in industries that are less easily
impacted by inevitabilities. For
example, in a highly competitive
industry, it is beneficial to investors to
choose a stock that offers features that
the majority of competitors do not
offer. According to SWOT analysis,
intense competition is the largest
industry threat suffered by Urban
Outfitters and Francesca’s. The more
competitive an industry causes the
companies within the industry to have
less control over price level. As a
result, opportunities to have high profit
margins are minimal. This is because if
consumers perceive prices to be
extremely high compared to
competitors, they will choose to switch
suppliers. However, Urban Outfitters
has put the company in a strategic
position, which allows them to control
the capability of manipulating prices.
This is positive information for
potential investors. Urban Outfitters
and their four other affiliates are all
commonly perceived as high-end
clothing. This could be attributed to the
fact that according to URBN SWOT
analysis, the company strategically places
store locations in metropolitan areas, areas
with universities, specialty centers, and
shopping malls (URBN SWOT analysis,
2016). This gives consumers the mindset
that the clothing of Urban Outfitters, Free
People, Anthropology, Terrain, and
BHLDN are high-end apparel.
However, while Urban Outfitters
competes with high-end apparel, they
are relatively cheap when compared
to competitors. In addition to intense
competition, both companies face
industry threats from an increase in
commodity prices and an increase in
minimum wage. While it is feasible
to counteract the threat of intense
competition, it is less feasible to
counteract tan increase in the cost of
production. The companies will have
to figure out a way to cut costs, so
their profit margins will continue to
grow, or at least, prevent their profit
margins prevent their profit margins
from declining. According to
Wikinvest, due to current demand
being much higher than demand in
previous years, cotton prices have
escalated up to 80.5% (Wikinvest,
2016). With a cost of production this
high, profit margins are going to
decrease substantially unless FRAN
and URBN can figure out a way to
cut spending. If Urban Outfitters and
Francesca’s are not capable of doing
this, then investors can expect a
decline in the profitability of the firm
until cost of cotton goes back to
equilibrium. In addition to the
increase in the cost of raw materials
of production, minimum wage has
been steadily increasing for the past 8
years. As one could expect, if
earnings do not increase with the
increase in the costs of production,
the industry will be affected at a
detrimental level (URBN SWOT
analysis, 2016; FRAN SWOT
analysis, 2016; Wikinvest, 2016).
International Markets
While Francesca’s has yet to
emerge into international markets,
Urban Outfitters is present in the
international market. According to
Forbes Magazine, in recent years
revenue generated by the
international market has increased
at an even higher rate than revenue
generated by the domestic market
(Forbes Magazine, 2015).
Fortunately for potential investors,
one can expect this growth to
continue. This is due to Urban
Outfitters increasing presence in
In the E-commerce segment of
distribution. With e-commerce,
international consumers can easily
buy products from Urban
Outfitters, Anthropology, Free
People, Terrain, and BHLDN.
This is good news for potential
investors, because it indicates the
potential for earnings derived by
international consumption.
Market Structure
The apparel industry is
characterized by free entry and
exit, intense competition, and
differentiated products. These
characteristics are all symbolic of
a monopolistic market structure.
The monopolistic market structure
involves the ability for companies
to develop a strong brand identity
with customers by differentiated
products. If this takes place, the
ability to develop a price
advantage emerges. Potential
investors in Urban Outfitters could
find this information beneficial,
because Urban Outfitters has
developed a strong brand identity
and is competing with high-end
apparel at a lower cost. This
implies the current success of the
firm and the potential for future
growth that emerges from having
such a strong brand identity.

4. AN ANALYSIS OF URBNAND FRAN
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Vol. 1 Issue 2
Industry Analysis (Continued)
Sales 4.1 URBN FRAN EPS 4.2 URBN FRAN NPM 4.3 URBN FRAN
2015 3450.00 434.00 2015 1.80 0.87 2015 7.0% 8.2%
2014 3323.10 377.50 2014 1.68 0.76 2014 9.2% 8.5%
2013 3086.60 340.30 2013 1.89 1.02 2013 8.5% 13.1%
2012 2794.40 295.40 2012 1.62 1.05 2012 7.5% 15.9%
2011 2473.80 204.20 2011 1.19 0.54 2011 12.0% 11.5%
2010 2274.10 135.20 2010 1.60 1.75
Trend 8.74% 27.36% Trend 4.64% 2.29% Average 8.8% 11.4%
P/E 4.4 URBN FRAN ROC 4.5 URBN FRAN LTD 4.6 URBN FRAN
2015 11.1 17.8 2015 17 27 2015 115 N/A
2014 20.8 20.2 2014 17.5 29.4 2014 N/A N/A
2013 21.1 23.3 2013 16.7 65.8 2013 N/A 25
2012 20.4 28.5 2012 17.5 66.8 2012 N/A N/A
2011 24.5 40.1 2011 17.4 54.7 2011 N/A 22
Average 19.6 26.0 Average 17.22 48.74 Average 23 9.4
Figure 4.1 represents URBN
and FRAN’s sales from 2011
to 2015. As one can see, both
companies’ sales have been
steadily increasing. This is
positive information for both
Urban Outfitters and
Francesca’s. Though past
trends do not guarantee what
takes place in the future, it
provides potential investors
an indication of the direction
in which sales will be
heading towards in the
coming quarters. For a
company to be a profitable
investment, it is imperative
that the firms’ sales are
increasing. However, as one
can easily see, Urban
Outfitters has far higher sales
than that of Francesca’s.
Figure 4.2 represents URBN
and FRAN’s EPS from 2011
to 2015. Earnings per share
denote the amount
of dollars actually earned on all shares
of common stock issued by the
company. A positive trend or a high
EPS is preferred. This is because it
indicates that the investment made by
investors is generating an increasing
amount of profit. Overall, both firms’
EPS have increased from 2011 to 2015,
though each company had a drop in
EPS in 2014. However, because the
overall trend is positive, both firms’
EPS are positive news to potential
investors. Figure 4.3 represents URBN
and FRAN’s net profit margin. The net
profit margin denotes the actual amount
of profit a firm earns after factoring in
all expenses, taxes, preferred stock
dividends, and interest. A higher net
profit margin indicates a greater ability
to turn a profit. A firm with a high
NPM is more profitable than a firm
with a low NPM. This is because it
indicates the ability of the firm to turn
sales into profit. It is clear by the
information presented in 4.3 that
Francesca’s is doing a far better job at
turning sales into profit. Figure 4.4
represents URBN and FRAN’s price
to earnings ratio from 2011 to 2015. A
higher P/E ratio indicates investors
have confidence in the stock and are
willing to pay a higher price to acquire
it. This is because the firm’s P/E ratio
represents the price an investor is
willing to pay for each dollar of firms’
earnings. Currently, investors are
willing to pay more for a dollar of
Francesca’s earnings. This does not
mean Francesca’s is a better
investment than Urban Outfitters.
Urban Outfitters is trading at a
substantially lower P/E ratio than the
average; this could indicate an
extremely undervalued stock.
Francesca’s is also trading at a lower
P/E ratio than average, which
indicates Francesca’s is potentially
undervalued as well. Figure 4.5
represents URBN and FRAN’s return
on capital from 2011 to 2015. Return
on capital denotes the ability of a firm
to generate a profit with the assets
held by the firm.

5. AN ANALYSIS OF URBNAND FRAN
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Vol. 1 Issue 2
According to Funding Universe, in 1970
Scott Belair (top photo) and Richard Haynes
(bottom photo) started the first Urban
Outfitters. As recent college graduates, the
two decided to start a clothing store
specifically for college students. They
opened their first store in Pennsylvania
under the name Free People (Funding
Universe, 2016).
Industry Analysis (Continued)
contracting. One can attribute this to
the ability of firms with higher
liquidity to still be capable of
fulfilling debt obligations along with
not needing to cut dividends during
economic downturns. Urban
Outfitters and Francesca’s both do not
distribute dividends. This is not a bad
thing. This could indicate both firms
are in a stage of growth. In summary,
an increase in the cost elements of
production and intense competition
are the largest industry threats.
However, both Urban Outfitters and
Francesca’s are in a strategic position,
which allows them to be less affected
by these variables. Francesca’s has a
current ratio of 1.7, while Urban
Outfitters’ has a current ratio of 2.28.
This means Urban Outfitters has
higher liquidity than Francesca’s.
However, this is somewhat expected.
Urban Outfitters is a substantially
larger company. Yet, while Urban
Outfitters is more liquid than
Francesca’s, Francesca’s is doing well
in being on the same level with
URBN in profitability. Two ways to
measure this are by looking at figure
4.4 and 4.5. These figures represent
URBN and FRAN’s net profit margin
and return on capital. In both cases,
FRAN is providing a significantly
higher return. Both firms’ have
manageable debt levels. However,
one may gather Francesca’s is doing a
better job at managing costs. By
looking at both companies’ sales and
comparing that value to the same
company’s net profit margin one can
gather which company is managing
expenses better. In this case,
Francesca’s is doing a
A high ROC is preferred,
because it indicates how
efficiently a firm is managing its
assets. Clearly, Francesca’s is
doing a far better job at using
the firm’s assets to generate
profit. For every dollar of a
shareholder’s investment, Urban
Outfitters is earning 17 cents.
However, on every dollar of
shareholders’ investment at
Francesca’s, the firm is earning
27 cents. Figure 4.6 represents
URBN and FRAN’s long-term
debt. Long-term debt represents
the amount of debt a firm owes
after the current year. While
some debt is not bad, as debt
increases the liquidity of the
firm falls. This is not desirable.
As one can see, both Urban
Outfitters and Francesca’s have
typically rarely had long-term
debt. While Francesca’s LTD is
decreasing (to zero), Urban
Outfitters’ LTD is increasing.
However, this is not necessarily
a bad thing. Remember Urban
Outfitters’ sales are significantly
higher than that of Francesca’s.
As long as URBN can afford the
interest payments that
accompany debt, the firm can
sustain more debt. In addition to
this, Urban Outfitters has a
higher liquidity ratio than
Francesca’s. This means that
even though URBN has more
debt than FRAN, URBN still
has more cash on hand at any
given time. This will provide
investors with a greater margin
of safety when the economy is
significantly better job. In addition,
Francesca’s is managing its assets
better than Urban Outfitters. One
may gather this by looking return on
capital. FRAN’s ROC is far greater
than URBN. Both companies’ P/E
ratios are below trend. This could
potentially indicate both firms are
undervalued (Value line, 2016;
Morningstar, 2016; NASDAQ,
2016).

6. AN ANALYSIS OF URBNAND FRAN
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Vol. 1 Issue 2
Fundamental Valuation
The required return on a stock is the return
an investor requires to be compensated for
the risk of the stock. The riskier a stock is,
the higher the required rate of return. If a
stock is less risky, the stock will have a
lower required rate of return. The required
return from a stock is largely determined
by the stock’s beta. This is because the
beta is a measure of the risk of the stock
when compared to the risk of the market. If
a stock has a beta of less than one, then the
stock is less risky than the market. If a
stock has a beta of greater than one, then
the stock is more risky than the market. As
one could expect, if a stock has a beta that
is riskier than the market, the investor will
require a higher return in order to be
compensated for the additional risk. If the
stock is less risky than the market, then the
investor will require less return to be
compensated for the risk of the stock. Both
URBN and FRAN have a beta of .80, and
thus are .20% less risky than the market. If
a stock’s holding period return is greater
than the required return, then the stock is a
buy. However, if the holding
period return is less than the
required return, then the stock is
considered a sell. Figure 6.1
represents URBN’s HPR,
annual return, alpha, and
sensitivity analysis. As one can
see, URBN provides a
substantial extra return in
addition to the required return,
this indicates an undervalued
stock. Hence, URBN is
considered a buy. In
comparison, FRAN provides
less of a return than the required
return. This indicates an
overvalued stock and a sell. In
addition to the return of the
stock, the sensitivity analysis of
each stock is depicted in figures
6.1 and 6.2. A sensitivity
analysis provides an investor a
degree of knowledge as to how
changes in EPS and P/E will
affect the return of the stock.
This is because the holding
period return is based on the
price of the stock. If the price
of the stock falls the return
will too. In addition to this,
the price of the stock is the
product of the P/E ratio and
EPS. Thus, if one of the two
fall, so too will the price. The
sensitivity analysis captures
this uncertainty and provides
the investor with an idea of
which company is less
affected by uncertainties.
Clearly, a firm that is less
sensitive is desirable. As one
can see in the sensitivity
analysis presented above,
URBN is far less affected by a
fall in P/E and EPS than
FRAN. Based on the
fundamental valuation, Urban
Outfitters is considered a buy
and a safer investment than
Francesca’s.
Expected HPR
HPR =
Inflows/Outflows 2.5886 Alpha
Annual Return .3731
Annual -
Required .2921
undervalued undervalued
Expected HPR Alpha
HPR =
Inflows/Outflows 1.2254
Annual -
Required -0.0109
Annual Return 0.0701 overvalued
Overvalued undervalued
Sensitivity
If P/E is
If EPS
is
20%
less
10%
less
As
expected
10%
more
20%
more
20% less 20.170% 24.396% 26.353% 32.081% 35.609%
10% less 24.396% 24.286% 28.729% 32.884% 36.795%
As
expected 23.773% 28.729% 33.330% 37.634% 41.684%
10%
more 27.768% 32.884% 37.634% 42.077% 46.258%
20%
more 31.528% 36.795% 41.684% 46.258% 50.562%
Sensitivity
If P/E is
If EPS
is
20%
less
10%
less
As
expected
10%
more
20%
more
20% less
-
7.782%
-
4.089% -0.661% 2.546% 5.564%
10% less
-
4.089%
-
0.249% 3.317% 6.652% 9.791%
As
expected
-
0.661% 3.317% 7.010% 10.464% 13.715%
10%
more 2.546% 6.652% 10.464% 14.030% 17.386%
20%
more 5.564% 9.791% 13.715% 17.386% 20.840%
URBN Figure 6.1 FRAN Figure 6.2

7. AN ANALYSIS OF URBNAND FRAN
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Vol. 1 Issue 2
Corporate Governance Considerations
Figures 7.1 and 7.2 depict Urban
Outfitters and Francesca’s institutional
and insider decisions regarding the
buying and selling of stock.
Institutional investors account for
larger portions of a firm’s outstanding
stock when compared to the portion
held by insiders. This is because
institutional investors represent the
investments made by large banks, large
companies or other large institutions.
When institutional investors account
for a large portion of a firm’s
outstanding stock, investors can expect
a certain degree of volatility to
accompany the stock. One can attribute
this to the intuitional investor’s ability
to sell in large quantities, which will
drive down the price of the stock.
Figure 7.1 shows that while most
insiders and institutional investors are
selling shares of Urban Outfitters’
stock, the majority of insiders and
institutional investors are buying
Francesca’s stock (shown in figure
7.2).
According to Nasdaq, institutional
investors account for 75% of
outstanding shares of Urban
Outfitters’ stock with a total of
117 million shares outstanding
and a total value of $2,868
(million). Institutional investors
account for over 105% of
Francesca’s outstanding stock
with 43 million shares
outstanding and a total value of
$776 (million). Based on this
information, one can conclude
that institutional investors are
buying and selling shares of
Francesca’s stock for more than
that of Urban Outfitter’s stock
(Value line, 2016; NASDAQ,
2016; Morningstar, 2016). A firm
with a significant amount of
institutional investors is not
necessarily a better company.
This could cause a higher price
and more volatility than a stock
with less institutional
investors. When intuitional
investors account for a substantial
amount of a firms’ stock, if the
institutional investors sell, it will
drive down the price of the stock
considerably. A firm with less
institutional investors has a greater
probability of being undervalued.
Figure 7.2 Francesca’s (Valueline, 2016).
Figure 7.1 URBN
P/E 2013 2014 2015 P/Sales 2013 2014 2015 P/BV
High 23.8 24.2 26.3 High 2.15 1.60 1.58 High 3.91 4.00 4.48
Low 18.5 16.6 10.7 Low 1.67 1.10 0.64 Low 3.04 2.74 1.83
Average 21.2 20.4 18.5 Average 1.91 1.35 1.11 Average 3.48 3.37 3.16
(P/E)/EPS
g 2.4 2.3 2.1 (P/Sales)/NPM 0.21 0.19 0.17 (P/BV)/ROE 0.21 0.18 0.17
Relative Valuation
Urban Outfitters 7.3 (Valueline, 2016).
Francesca’s 7.4 (Valueline, 2016).
P/E 2013 2014 2015 P/Sales 2013 2014 2015 P/BV
High 31.8 29.2 20.9 High 4.03 2.56 1.74 High 17.61 8.84 5.60
Low 15.3 14.1 11.5 Low 1.94 1.23 0.96 Low 8.48 4.26 3.08
Average 23.5 21.7 16.2 Average 2.99 1.89 1.35 Average 13.04 6.55 4.34
(P/E)/EPS
g 1.6 1.4 1.1 (P/Sales)/NPM 0.23 0.22 0.15 (P/BV)/ROE 0.23 0.22 0.16

8. AN ANALYSIS OF URBNAND FRAN
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Vol. 1 Issue 2
Figure 7.3 and 7.4 depict URBN and FRAN’s
high low and average price to earnings ratio,
high low and average price to sales ratio, and
high low and average price to book value ratio.
Along with this, the companion variable is
given for each category. The companion
variable is provided in order to give the reader
an indication of the firms’ success when
assessing all factors. Sometimes a number can
look extremely impressive, but when
comparing it to the numbers’ companion
variable, the number becomes substantially
less impressive. As one can see, Francesca’s is
trading at a lower P/E ratio than Urban
Outfitters. Along with this, Francesca’s also
has a better peg ratio. This means that
Francesca’s has better growth in earnings
when compared with the price of the
stock. However, URBN has experienced
a recent extreme drop in price, which will
increase the firm’s peg ratio. This could
also indicate the firm is extremely
undervalued when compared to the trend.
The graphs also depict both Firms’
p/sales ratio. Clearly, Urban Outfitters
has much higher sales than that of
Francesca’s. However, When comparing
their sales to each firm’s NPM,
Francesca’s more than makes up for their
lack in comparable sales by being the
lower cost producer.
When comparing the P/BV each firms’
ROE, the firms have comparable
numbers. FRAN’s high ROE helps keep
the price low when compared to the
book value. As depicted by figures 7.3
and 7.4, one could indicate that both
URBN and FRAN are currently
undervalued. Both firms have similar
P/E, PEG, P/Sales, P/Book ratios when
compared to the companion variables.
However, URBN’s recent drop in price
will help to push URBN’s stock into a
much more undervalued position. This
indicates that URBN is currently a better
investment than FRAN.
Technical Valuation
Figure 8.1 URBN
The simple moving average is a form of technical analysis that
represents the effect of supply and demand on historical price
patterns. It should be made clear that the price of a stock is
determined by supply and demand. Whenever there is excess
supply, the price of the stock will fall. However, whenever there
is a shortage of supply, the price of the stock will rise. The line
chart above is a visual representation of the historical
relationship of supply and demand. It indicates whether a stock
is a buy or a sell. The 50-day simple moving average represents
the average stock price from the previous fifty days, and the 200
day simple moving average represents the average price from
the previous 200 days. Figures 8.1 and 8.2, provided by big
charts market watch, depict the simple moving average (SMA)
of both Urban Outfitters and Francesca’s. One can determine
whether the stock is a buy or sell based on where the stocks’
price line lies in correlation with the 50 SMA and 200 day
SMA. If the black line intersects the SMA from below and
exceeds it, this is a clear indication of to buy. However, If the
simple moving average falls below the 50 SMA, this is a signal
to sell. If the 50-day SMA falls below the 200-day SMA this is
a second signal to sell. If the price of the stock is above the
simple moving average, supply and demand are in equilibrium.
However, when the price of the stock is below the SMA, one
can assume that the price of the stock is falling. As one can see
in Figure 8.1, the price of URBN’s stock
was below both SMA’s in 2011, but in 2012 the price
intersected both SMA’s from below. This indicated a
buy signal. The price stayed above both SMA’s until late
2013when the price plummeted. The stock price had a
volatile period in between late 2013 until 2015 where the
price increased rapidly. However, in mid-2015, Urban
Outfitters’ stock fell dramatically. The price of the stock
seems to be close to intersecting both SMA’s from
below, which indicates that a buy signal is likely soon to
occur. According to Jeremy Bowman’s article “Why
Urban Outfitters Stock Got Dumped”, the price decline
could be attributed to the firms’ third quarter sales being
less than investor’s had predicted (Bowman, 2013). In
addition to the 2013 price decline, according to Danya
Henninger and Michael Klein of Philly News, the cause
of the drastic decline of stock price in 2015 could be
attributed to the merging of Urban Outfitters and Vetri
Empire (Henniger and Klein, 2015). The writers state
that the companies decided to merge to attract customers
to Urban Outfitters and to help Vetri Empire to expand.
However, clearly this was not a likeable concept to
investors. Urban Outfitters price fell nearly ten percent
due the decision to merge with a pizza restaurant (Philly,
2015; BigCharts,2016).
Relative Valuation (Continued)

9. AN ANALYSIS OF URBNAND FRAN
9
Vol. 1 Issue 2
Technical Valuation Continued
Figure 8.2 FRANThe simple moving average of 50 days and 200 days for
Francesca’s is less proven than that of Urban Outfitters. One
can attribute this to the lack of extreme establishment of
Francesca’s when compared to Urban Outfitters. Urban
Outfitters’ has been a publicly traded company much longer
than Francesca’s. Francesca’s has been in a period of
expansion as it emerges into the stock market as a publicly
traded stock. As one can tell for much of 2011 through late
2012 Francesca’s stock price was well over the 50 day SMA.
However, in late 2012 the Francesca’s price dipped below the
50 day SMA. This pattern continues until early 2015 when the
price exceeded the 50 day SMA. This was short-lived; about
fourth way through 2015, the price fell below the 50-day SMA.
During late 2015, the price intersected the 50 day SMA from
below. This does not yet indicate a buy. The price is still below
the 200 day SMA. However, if the price increase continues, the
price seems to be on the verge of intersecting the 200 day SMA
from below. When this takes place, it will be a clear signal to
buy. According to The Motley Fool, the majority of the drastic
price drops can be attributed to a lack of earnings when
compared to the predictions made by analysts (The
Motley Fool, 2014; BigCharts, 2016).
URBN 9.1 FRAN 9.2
Figures 9.1 and 9.2 depict a point and line chart gathered
from stockcharts.com. Point and line charts are another form
of technical analysis used to analyze price trends based on
supply and demand. As one can see, the chart has numerous
X’s and O’s. The X’s are indicative of a price increase, and
the O’s are indicative of a fall in price. Point and figure
charts possess two important indicators of whether a stock is
a buy or a sell: support and resistance lines. The resistance
line tends to represent a selling point, and a support line
tends to represent a buying point. A resistance line is a point
in price where it is questionable how the price will rise
above it at that point in time. This causes supply to exceed
demand and will most likely cause a decline in price. A
support line acts a “floor” for a price decline, and once the
floor has been reached it is likely that demand will rise and
price will increase. Figure 9.1 represents URBN’s point and
line chart. It is clear that the overall trend has been positive,
but there have been quite a few negative periods. This could
be indicative of a volatile stock. URBN has a resistance line
around $47 and a support line ranging from high $20’s to
fallen to an all-time low of 22. However, as discussed
earlier, the support line is indicative of a buying point.
One can expect the price to rise as investors are likely to
start buying shares of URBN’s stock in response to the
support line being met. Figure 9.2 represents FRAN’s point
and figure chart. As one can see, this point and figure chart
has a much more negative than that of URBN. FRANs
resistance line occurs around $18, and a support line around
$12. As one can see, in earlier years FRAN had a much
higher resistance line. As time has progressed, the resistance
line has fallen substantially. This could indicate a fall in
profitability of the firm, or it could indicate a fall in
confidence in investors. Based on the point and line figure
charts presented above, one could determine that URBN is a
more profitable investment. Another prediction could be
made in the probability of a demand increase in the coming
quarters in URBN’s stock, due to the lowest support line to
date. This indicates a recent all-time low price (undervalued
stock), which will likely increase demand driving up the
price of the stock significantly. (StockCharts, 2016).

10. AN ANALYSIS OF URBNAND FRAN
10
Vol. 1 Issue 2
References
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http://marketrealist.com/2015/04/will-r etailers-benefit-higher-disposable-income/
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http://www.morningstar.com/stocks/xnas/urbn/quote.html

11. AN ANALYSIS OF URBNAND FRAN
11
Vol. 1 Issue 2
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