Today, Bath & Body Works Inc (BBWI, Financial) experienced a daily gain of 3.29% and has shown a 3-month gain of 12.36%. With an Earnings Per Share (EPS) of 3.85, investors might wonder if the stock is modestly overvalued. This analysis aims to delve deeper into its valuation, encouraging readers to explore the intricate details of its financial standing and market position.
Company Overview
Bath & Body Works operates under renowned brands including Bath & Body Works, C.O. Bigelow, and White Barn, primarily in North America with a minor 5% of sales internationally. In fiscal 2023, 74% of its $7.40 billion sales came from over 1,800 brick-and-mortar stores. The company is poised for growth through digital expansion, international reach, and category diversification. Currently, Bath & Body Works is trading at $49.4 per share, which is above the GF Value estimate of $43.53, suggesting a modest overvaluation.
Understanding GF Value
The GF Value is a proprietary measure reflecting the true intrinsic value of a stock. It considers historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and estimated future business performance. When a stock's price significantly exceeds this value, it's likely overvalued, suggesting lower future returns. Conversely, prices well below the GF Value could indicate undervaluation and higher potential returns. For Bath & Body Works, the current price suggests that the stock might not offer substantial returns in the near future due to its overvaluation.
Financial Strength and Stability
It is crucial to assess a company's financial health before investing. Bath & Body Works has a cash-to-debt ratio of 0.2, which is lower than 69.65% of its peers in the Retail - Cyclical industry. This indicates a fair financial strength, with a rating of 5 out of 10. Such metrics suggest that while the company isn't in financial distress, it does carry a higher risk compared to more financially secure companies.
Profitability and Growth Prospects
Bath & Body Works has consistently demonstrated profitability, with high profit margins that surpass 91.89% of its industry counterparts. The company's 3-year average annual revenue growth rate of 12.3% is robust, although its EBITDA growth rate has slightly declined. This blend of historical profitability and mixed growth signals presents a nuanced view for potential investors.
Moreover, the company's Return on Invested Capital (ROIC) is impressively high at 30.93, significantly surpassing its Weighted Average Cost of Capital (WACC) of 10.76, indicating efficient management and promising profitability.
Conclusion
While Bath & Body Works (BBWI, Financial) shows strong profitability and a solid operational model, its current market price slightly overshoots its intrinsic value according to our GF Value assessment. Investors should weigh the potential for modest overvaluation against the company's strong financial and operational metrics. For a deeper dive into Bath & Body Works' financials, visit 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
