Shareholders of Bath and Body Works would probably like to forget the past six months even happened. The stock dropped 31% and now trades at $23.05. This was partly driven by its softer quarterly results and might have investors contemplating their next move.
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Despite the more favorable entry price, we’re sitting this one out for now. Here are three reasons we avoid BBWI and a stock we’d rather own.
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 2.1% annual declines.
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 rise by 2.1%, a deceleration versus This projection is underwhelming and indicates its products will see some demand headwinds.
Analyzing the long-term change in earnings per share (EPS) shows whether a company’s incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.
Bath and Body Works’s unimpressive 8.5% annual EPS growth over the last six years aligns with its revenue performance. This tells us it maintained its per-share profitability as it expanded.
Bath and Body Works isn’t a terrible business, but it doesn’t pass our bar. Following the recent decline, the stock trades at 6.5× forward P/E (or $23.05 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We’re pretty confident there are superior stocks to buy right now. We’d recommend looking at one of Charlie Munger’s all-time favorite businesses.
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