With a daily loss of 2.2% and a 3-month gain of 9.86%, Bath & Body Works Inc (BBWI, Financial) presents an intriguing case for investors. The company's Earnings Per Share (EPS) stands at 3.85, prompting the question: Is Bath & Body Works fairly valued? This article delves into a comprehensive valuation analysis of Bath & Body Works, inviting readers to explore the financial metrics and market positioning that determine its true worth.
Company Overview
Bath & Body Works Inc (BBWI, Financial) is a prominent retailer specializing in home fragrances and fragrant body care. With a strong presence in North America and a modest 5% of sales from international markets in fiscal 2023, Bath & Body Works continues to dominate its niche. The brand's strategy for future growth includes store reformatting, digital and international expansion, and exploring adjacent categories. The stock currently trades at $47.21, with a market capitalization of $10.70 billion. Comparing this price to the GF Value of $43.79, we initiate our valuation analysis to assess whether Bath & Body Works stands as a fair investment opportunity.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, accounting for historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. This proprietary valuation model suggests a fair trading value for stocks, with the GF Value Line serving as a benchmark. When a stock's price significantly exceeds this line, it may be overvalued, indicating potential underperformance in the future. Conversely, prices well below the line could signal undervaluation and the possibility of higher returns.
Bath & Body Works' current price point suggests it is fairly valued according to the GF Value Line. With a solid market cap of $10.70 billion, the stock's valuation aligns closely with its business growth, hinting at potential stability in long-term returns.
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Financial Strength Assessment
Investors must scrutinize a company's financial strength to mitigate the risk of capital loss. Key indicators such as the cash-to-debt ratio and interest coverage are critical in this evaluation. Bath & Body Works' cash-to-debt ratio of 0.2 ranks below 68.15% of its peers, reflecting modest financial resilience. With an overall financial strength rating of 5 out of 10, Bath & Body Works exhibits a fair financial position.
Profitability and Growth Insights
Consistent profitability is a hallmark of a less risky investment. Bath & Body Works has maintained profitability for 9 out of the past 10 years, with an impressive operating margin of 17.31% that outperforms 91.51% of its industry counterparts. This strong profitability, coupled with a revenue of $7.40 billion and an EPS of $3.85, secures the company a robust profitability rank of 8 out of 10.
Regarding growth, Bath & Body Works' 3-year average annual revenue growth rate of 12.3% surpasses 70.3% of the industry. However, its EBITDA growth rate lags behind, presenting a mixed picture of the company's growth trajectory.
ROIC vs. WACC Comparison
An effective measure of profitability is to compare a company's Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Bath & Body Works boasts an ROIC of 31.08, significantly higher than its WACC of 10.63, indicating value creation for shareholders.
Conclusion
Overall, Bath & Body Works (BBWI, Financial) is aligned with its fair value, suggesting a balanced investment opportunity. The company's financial health is sturdy, and its profitability ranks high. Although its growth rate shows some areas for improvement, the company's strategic initiatives and market position hint at promising prospects. For a deeper dive into Bath & Body Works' financials, investors can review 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.
