What a brutal six months it’s been for Bath and Body Works. The stock has dropped 27.9% and now trades at $27.80, rattling many shareholders. This was partly driven by its softer quarterly results and may have investors wondering how to approach the situation.
Is now the time to buy Bath and Body Works, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.
Why Is Bath and Body Works Not Exciting?
Despite the more favorable entry price, we're sitting this one out for now. Here are three reasons why we avoid BBWI and a stock we'd rather own.
1. Shrinking Same-Store Sales Indicate Waning Demand
Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).
Bath and Body Works’s demand has been shrinking over the last two years as its same-store sales have averaged 2.8% annual declines.
2. Projected Revenue Growth Is Slim
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 rise by 2.3%, a deceleration versus This projection is underwhelming and implies its products will see some demand headwinds.
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 an unimpressive 9.1% compounded annual growth rate over the last six years. On the bright side, this performance was better than its 6.7% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.
Final Judgment
Bath and Body Works’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 7.6× forward P/E (or $27.80 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. Let us point you toward the most entrenched endpoint security platform on the market.
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