Bath & Body Works Inc (BBWI, Financial) has experienced a daily loss of 2.08% and a 3-month loss of 11.17%. Despite these losses, the company has reported an Earnings Per Share (EPS) (EPS) of 3.07. This raises the question: Is the stock significantly undervalued? This article will delve into the valuation analysis of Bath & Body Works (BBWI), providing a comprehensive overview of its financial health and future prospects.
Company Overview
Bath & Body Works is a specialty home fragrance and body care retailer, operating under Bath & Body Works, C.O. Bigelow, and White Barn brands. The company primarily operates in North America, with less than 5% of sales from international markets in fiscal 2022. The majority of its revenue, 72%, comes from its brick-and-mortar stores, which number over 1,800. The company's future growth is expected to stem from store reformatting, digital and international channels, and new category expansion.
The company's stock price currently stands at $33.36, while the estimated fair value (GF Value) is $56.04, suggesting that the stock may be significantly undervalued. The following analysis aims to provide a deeper understanding of the company's value.
Understanding the GF Value
The GF Value is a proprietary measure that estimates the intrinsic value of a stock. It considers historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally trade.
According to GuruFocus Value calculation, Bath & Body Works (BBWI, Financial) is estimated to be significantly undervalued. With its current price of $33.36 per share and a market cap of $7.60 billion, Bath & Body Works stock appears to offer a high return potential. The long-term return of its stock is likely to be much higher than its business growth due to its significant undervaluation.
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Assessing Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Bath & Body Works has a cash-to-debt ratio of 0.13, ranking worse than 76.98% of 1099 companies in the Retail - Cyclical industry. The overall financial strength of Bath & Body Works is 4 out of 10, indicating that it's financial strength is poor.
Profitability and Growth
Companies that have been consistently profitable over the long term offer less risk for investors. Bath & Body Works has been profitable 9 over the past 10 years. Over the past twelve months, the company had a revenue of $7.40 billion and an EPS of $3.07. Its operating margin is 16.42%, ranking better than 90.39% of 1114 companies in the Retail - Cyclical industry. Overall, the profitability of Bath & Body Works is ranked 8 out of 10, indicating strong profitability.
Growth is an essential factor in a company's valuation. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Bath & Body Works is 18.6%, ranking better than 80.52% of 1047 companies in the Retail - Cyclical industry. However, the 3-year average EBITDA growth rate is 7.1%, ranking worse than 51.79% of 896 companies in the same industry.
ROIC vs WACC
Comparing a company's return on invested capital (ROIC) and the weighted cost of capital (WACC) provides another perspective on its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Ideally, ROIC should be higher than WACC. For the past 12 months, Bath & Body Works's ROIC is 26.04, and its WACC is 9.2.
Conclusion
In conclusion, Bath & Body Works (BBWI, Financial) stock is estimated to be significantly undervalued. The company's financial condition is poor, but its profitability is strong. Its growth ranks worse than 51.79% of 896 companies in the Retail - Cyclical industry. To learn more about Bath & Body Works stock, you can check out its 30-Year Financials here.
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