Over the last six months, Bath and Body Works’s shares have sunk to $16.35, producing a disappointing 12% loss - a stark contrast to the S&P 500’s 16.3% gain. This might have investors contemplating their next move.
Is there a buying opportunity in Bath and Body Works, or does it present a risk to your portfolio? See what our analysts have to say in our full research report, it’s free.
Why Is Bath and Body Works Not Exciting?
Even though the stock has become cheaper, we’re sitting this one out for now. Here are three reasons why BBWI doesn’t excite us, plus one stock we’d rather own.
1. Shrinking Same-Store Sales Indicate Waning Demand
Same-store sales is a key performance indicator used to measure organic growth at brick-and-mortar shops for at least a year.
Bath and Body Works’s demand has been shrinking over the last two years as its same-store sales have averaged 1.7% annual declines.
2. Projected Revenue Growth Shows Limited Upside
Forecasted revenues by Wall Street analysts signal a company’s potential. Predictions may not always be accurate, but accelerating growth typically boosts valuation multiples and stock prices while slowing growth does the opposite.
Over the next 12 months, sell-side analysts expect Bath and Body Works’s revenue to stall, close to its 1.1% annualized declines for the past three years. This projection is underwhelming and implies its newer products will not catalyze better top-line performance yet.
3. EPS Barely Growing
We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.
Bath and Body Works’s EPS grew at 3.8% compounded annual growth rate over the last three years. On the bright side, this performance was better than its 1.1% annualized revenue declines and tells us management adapted its cost structure in response to a challenging demand environment.
Final Judgment
Bath and Body Works isn’t a terrible business, but it doesn’t pass our quality test. After the recent drawdown, the stock trades at 6.2× forward P/E (or $16.35 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We’re fairly confident there are better stocks to buy right now. We’d recommend looking at the Amazon and PayPal of Latin America.
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