Amid the daily fluctuations of the stock market, investors seek to understand the true value of their investments. Bath & Body Works Inc (BBWI, Financial) recently experienced a 3.1% gain, yet over the past three months, it has seen a decline of 12.25%. With an Earnings Per Share (EPS) of 3.19, the question arises: is Bath & Body Works significantly undervalued? This article dives into the valuation analysis of Bath & Body Works, providing insights for investors to consider.
Bath & Body Works Inc (BBWI, Financial), a leading specialty retailer of home fragrances and body care, has a rich history and a strong business presence, primarily in North America. With a market cap of $7.30 billion and sales of $7.40 billion, it presents an interesting case when its stock price of $31.27 is weighed against the GuruFocus Fair Value (GF Value) of $47.27. This valuation suggests that Bath & Body Works may be significantly undervalued, a hypothesis we shall explore in depth.
Summarize GF Value
The GF Value is a proprietary measure that indicates the intrinsic value of a stock. Bath & Body Works (BBWI, Financial) appears significantly undervalued according to this metric. The GF Value is meticulously calculated by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, along with future business performance estimates. When a stock trades below this value line, it may indicate a potential for higher future returns.
Given that Bath & Body Works is trading below its GF Value, the long-term return of its stock is likely to surpass its business growth, presenting an attractive opportunity for value investors.
Investing in companies with robust financial strength is crucial to avoid the risk of capital loss. Bath & Body Works's financial strength, however, appears to be a concern with a cash-to-debt ratio of 0.07, ranking lower than the majority of its peers in the Retail - Cyclical industry. This positions the company's financial strength at a modest 4 out of 10, indicating a need for potential investors to tread carefully.
Profitability and Growth
Profitable companies often make for safer investments, and Bath & Body Works has a track record of profitability, with an impressive operating margin of 16.77%, ranking high within its industry. In terms of growth, the company's 3-year average revenue growth rate is commendable, though its EBITDA growth rate suggests there is room for improvement compared to its industry counterparts.
ROIC vs WACC
Comparing the Return on Invested Capital (ROIC) with the Weighted Average Cost of Capital (WACC) offers another perspective on Bath & Body Works's value creation. A higher ROIC than WACC suggests that the company is generating value for its shareholders. Bath & Body Works's ROIC of 25.98 significantly surpasses its WACC of 9.31, indicating efficient capital utilization.
In conclusion, Bath & Body Works (BBWI, Financial) presents as significantly undervalued when considering the GF Value. Despite its less-than-ideal financial strength, the company's profitability is robust, and its growth is on par with industry standards. Investors seeking to understand the full picture of Bath & Body Works's financial health can explore its 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.