Birkenstock's Growth Optimism Confronts Overvaluation and Structural Risks

What happened

A Seeking Alpha article reiterates a buy rating on Birkenstock, emphasizing robust demand and temporary supply bottlenecks for higher-margin closed-toe styles. It projects that new capacity in Pasewalk and Portugal will unlock growth by 2027, diversifying revenue and enhancing pricing power. However, the DeepValue master report notes the stock trades at ~24x P/E and ~17x EV/EBITDA, ~80% above a conservative DCF estimate, pricing in aggressive assumptions. Persistent material weaknesses in internal controls, new U.S. tariffs on EU-made products, and layered debt with TRA obligations compound the risk profile. Thus, while near-term supply constraints may ease, fundamental concerns around valuation and governance undermine the investment case.

Implication

The optimistic supply-side story does not justify the current premium multiples, given the stock's high valuation relative to intrinsic estimates. Tariffs and FX headwinds threaten to compress EBITDA margins from the low-30s, potentially derailing earnings growth and debt reduction plans. Governance issues, including unresolved internal control weaknesses, heighten the risk of financial misstatements or operational setbacks. Debt and TRA liabilities add financial strain, limiting flexibility if consumer demand or execution falters. A shift to a buy stance would require clear progress on risk remediation, sustained margin resilience, and a valuation reset that provides a margin of safety.

Thesis delta

The news article underscores Birkenstock's growth potential from capacity expansion, aligning with DeepValue's recognition of its high-quality brand and operational strengths. However, it fails to address the core valuation overhang or mitigate critical risks such as tariffs, governance flaws, and balance sheet complexities. Therefore, the DeepValue 'WAIT' recommendation remains intact, as the stock still lacks sufficient downside protection for value-oriented investors.