Is Levi Strauss (LEVI) Still Undervalued After a 20% YTD Rally?

The stock of Levi Strauss & Co. (LEVI) has surged by 29.55% year-to-date as of December 2025, closing at $21.77, a stark rebound from its 7.5% gain in 2024 according to Macrotrends. This rally has reignited debates about whether the company remains undervalued or if its valuation has become stretched amid mixed operational performance. To assess this, we must dissect its valuation metrics, growth sustainability, and strategic challenges in the context of a volatile denim market.

Valuation Metrics: A Tug-of-War Between Optimism and Caution

Levi Strauss currently trades at 17x forward earnings (FY25E), a multiple that analysts argue reflects aggressive pricing given the company's uneven performance according to Seeking Alpha. While this valuation may appear reasonable for a brand with global recognition, it hinges on the assumption that Levi's can sustain meaningful growth in a sector marked by cyclical demand and shifting consumer preferences.

The company's price-to-book (P/B) and price-to-sales (P/S) ratios, though not explicitly disclosed in recent reports, are likely elevated given the sector's reliance on intangible assets and brand equity. For context, the average P/S ratio for apparel retailers hovers around 1.5x, while Levi's P/S ratio has historically exceeded this benchmark, reflecting investor confidence in its premium positioning. However, this premium is increasingly scrutinized as the company grapples with margin pressures and structural challenges in the denim market.

Growth Sustainability: A Tale of Two Quarters

Levi Strauss' 2024 performance has been a study in contrasts. Q3 results were described as "disappointing," with flat earnings and downward-revised guidance, signaling ongoing struggles in a saturated market. Yet Q4 delivered a more optimistic narrative: net revenue rose 12% year-over-year, gross margins hit a record 61.3%, and adjusted EBIT margin expanded by 120 basis points to 13.4%. This volatility underscores the company's reliance on short-term operational fixes rather than durable growth drivers.

The Levi's brand, which accounts for the majority of revenue, saw 8% growth in Q4, driven by a 12% increase in women's sales according to MarketBeat. This segment strength is encouraging, particularly as Levi's maintains its #1 position in U.S. women's denim. However, the Dockers brand, which contributed to mixed results, is now under strategic review, including a potential sale. Such moves highlight the company's acknowledgment of its fragmented portfolio but also raise questions about its ability to innovate and capture new demand.

Looking ahead, Levi Strauss has projected 3.5%–4.5% organic revenue growth for 2025, with gross margins expected to stabilize near 61%. While these targets suggest a return to modest expansion, they fall short of the double-digit growth required to justify the current valuation. Moreover, the company's reliance on direct-to-consumer (DTC) channels-now 47% of total revenue- exposes it to e-commerce margin risks and inventory management challenges.

Strategic Challenges: Navigating a Shifting Denim Landscape

The denim market itself remains a wildcard. While Levi's has capitalized on trends like premiumization and sustainability, broader industry dynamics-such as shifting consumer preferences toward casual wear and the rise of fast fashion-pose long-term threats. The company's decision to explore the sale of Dockers reflects a recognition that its legacy brands may no longer align with evolving customer demands according to Reuters.

Additionally, Levi Strauss' forward guidance for 2025 includes a projected adjusted EBIT margin of 11%, a decline from Q4's 13.4% according to MarketBeat. This margin contraction, coupled with foreign exchange headwinds and supply chain complexities, could dampen earnings growth and test the resilience of its valuation.

Conclusion: A Stock at a Crossroads

Levi Strauss' 29.55% YTD rally has brought its valuation into a precarious sweet spot: neither clearly undervalued nor overtly overpriced. The 17x FY25E multiple according to Seeking Alpha implies confidence in the company's ability to navigate its challenges, but this optimism must be tempered by the reality of its inconsistent performance and structural headwinds. For investors, the key question is whether the company can transform its operational volatility into sustainable growth.

If Levi Strauss succeeds in streamlining its portfolio, accelerating innovation, and maintaining margin discipline, the current valuation could prove justified. However, given the sector's cyclicality and the company's mixed track record, a cautious approach is warranted. The stock's future will depend not on short-term fixes but on its ability to redefine its relevance in a rapidly changing market.