It hasn't been a great morning session for Bath & Body Works investors, who have watched their shares sink by -2.1% to a price of $31.43. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
Bath & Body Works Is Overvalued:
Bath & Body Works, Inc. operates a specialty retailer of home fragrance, body care, and soaps and sanitizer products. The company belongs to the Consumer Cyclical sector, which has an average price to earnings (P/E) ratio of 22.33. In contrast, Bath & Body Works has a trailing 12 month P/E ratio of 10.4 based on its earnings per share of $3.02.
There is an important limit on the usefulness of P/E ratios. Since the P/E ratio is the share price divided by earnings per share, the ratio is determined partially by market sentiment on the stock. Sometimes a negative sentiment translates to a lower market price and therefore a lower P/E ratio -- and there might be good reasons for this negative sentiment.
One of the main reasons not to blindly invest in a company with a low P/E ratio is that it might have low growth expectations. Low growth correlates with low stock performance, so it's useful to factor growth into the valuation process. One of the easiest ways to do this is to divide the company's P/E ratio by its expected growth rate, which results in the price to earnings growth, or PEG ratio.
Bath & Body Works's PEG ratio is 1.5, which shows that the stock is overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
The Company Has a Negative Equity Levels:
|Net Income (MM)||$983||$644||-$366||$844||$1,333||$800|
|Net Interest Expense (MM)||-$406||-$385||-$370||-$432||-$388||-$348|
|Depreciation & Amort. (MM)||-$524||-$590||-$588||-$521||-$363||-$221|
|Earnings Per Share||$3.43||$2.31||-$1.33||$3.0||$5.11||$3.43|
|Diluted Shares (MM)||287||279||276||281||261||233|
|Free Cash Flow (MM)||$2,113||$2,006||$1,694||$2,267||$1,762||$1,472|
|Capital Expenditures (MM)||-$707||-$629||-$458||-$228||-$270||-$328|
|Net Current Assets (MM)||-$5,607||-$5,695||-$8,375||-$6,653||-$4,534||-$5,433|
|Long Term Debt (MM)||$5,707||$5,739||$5,487||$6,366||$4,854||$4,862|
Bath & Body Works has weak revenue growth and a flat capital expenditure trend, irregular cash flows, and a decent current ratio. We also note that the company benefits from wider gross margins than its peer group and decent operating margins with a stable trend. However, the firm has declining EPS growth.