Over the last six months, Bath and Body Works’s shares have sunk to $20.79, producing a disappointing 8.7% loss - a stark contrast to the S&P 500’s 9% gain. This might have investors contemplating their next move.
Is now the time to buy Bath and Body Works, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, 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 you should be careful with BBWI, plus one stock we’d rather own.
1. Shrinking Same-Store Sales Indicate Waning Demand
Same-store sales show the change in sales for a retailer’s e-commerce platform and brick-and-mortar shops that have existed for at least a year. This is a key performance indicator because it measures organic growth.
Bath and Body Works’s demand has been shrinking over the last two years as its same-store sales have averaged 1.9% annual declines.
2. Revenue Projections Show Stormy Skies Ahead
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 drop by 1.7%, close to This projection is underwhelming and indicates its newer products will not accelerate its 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 4.5% compounded annual growth rate over the last three years. On the bright side, this performance was better than its 1.2% 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. Following the recent decline, the stock trades at 8.1× forward P/E (or $20.79 per share). While this valuation is fair, the upside isn’t great compared to the potential downside. We’re pretty confident there are more exciting stocks to buy at the moment. Let us point you toward one of our top software and edge computing picks.
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