Is Carter's, Inc. overvalued or undervalued?

As of 25 February 2025, the valuation grade for Carter's, Inc. moved from fair to very attractive, indicating a significant improvement in its perceived value. The company is currently undervalued, with a P/E ratio of 6, which is notably lower than its peers such as Gap, Inc. at 10.22 and Abercrombie & Fitch Co. at 15.96. Additionally, Carter's EV to EBITDA stands at 4.99, compared to the industry average, suggesting it is trading at a discount relative to its earnings potential.
Carter's, Inc. also boasts a high dividend yield of 517.86% and strong returns on capital and equity, with ROCE at 20.55% and ROE at 21.72%. Despite its attractive valuation metrics, the company has faced significant stock price declines, with a year-to-date return of -41.32%, contrasting sharply with the S&P 500's positive return of 12.22% over the same period. This divergence highlights the potential for recovery in Carter's stock, reinforcing its status as undervalued.