- If you are wondering whether Bath & Body Works is attractively priced after its recent share performance, this article walks through what the current stock price might be implying about the business.
- The share price last closed at US$19.50, with returns of 6.2% decline over 7 days, 19.0% decline over 30 days, 6.0% decline year to date and 31.5% decline over 1 year, while the 3 year and 5 year returns are 38.7% decline and 55.5% decline respectively.
- Recent coverage around Bath & Body Works has focused on how investors are reassessing mall based retailers and specialty brands, as consumer spending patterns and channel preferences continue to shift. This context helps frame why the share price and sentiment around the stock may have changed over different timeframes.
- Our valuation model currently gives Bath & Body Works a value score of 5/6, which means it screens as undervalued on most of the checks we run. We will walk through those methods next, then finish with a broader way to think about valuation that goes beyond the numbers alone.
Find out why Bath & Body Works's -31.5% return over the last year is lagging behind its peers.
Approach 1: Bath & Body Works Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow model estimates what a business might be worth today by projecting its future cash flows and discounting them back to a present value.
For Bath & Body Works, the model uses a 2 Stage Free Cash Flow to Equity approach. The latest twelve month free cash flow is about $849.9 million. Analysts have provided explicit forecasts through 2030, with projected free cash flow in that year of $1,075.0 million. Beyond the first few years, Simply Wall St extrapolates further cash flows to complete the 10 year path, then discounts each year back using the required return on equity.
Pulling those cash flows together, the DCF model arrives at an estimated intrinsic value of about $56.80 per share. Compared with the recent share price of $19.50, this implies an intrinsic discount of roughly 65.7%. On this measure, the stock appears to be materially undervalued.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Bath & Body Works is undervalued by 65.7%. Track this in your watchlist or portfolio, or discover 48 more high quality undervalued stocks.
Approach 2: Bath & Body Works Price vs Earnings
For a profitable company, the P/E ratio is a useful way to see what you are paying for each dollar of earnings. A higher or lower P/E on its own does not mean much, because investors usually pay more for businesses where they see stronger earnings growth ahead or feel more comfortable with the risks involved.
Bath & Body Works currently trades on a P/E of 6.04x. That sits below both the Specialty Retail industry average P/E of 18.49x and the broader peer group average of 35.54x. Simply Wall St also calculates a proprietary “Fair Ratio” for the stock of 15.06x. This is the P/E level that might be expected given factors such as its earnings growth profile, profit margins, industry, market value and identified risks.
This Fair Ratio can be more informative than a simple comparison with peers or the industry because it adjusts for company specific characteristics rather than assuming Bath & Body Works should trade in line with a broad group. With the current P/E of 6.04x sitting well below the Fair Ratio of 15.06x, the shares screen as undervalued on this metric.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your Bath & Body Works Narrative
Earlier we mentioned that there is an even better way to understand valuation, and on Simply Wall St that shows up as Narratives. With Narratives, you set out your story for a company, link it to your own assumptions for future revenue, earnings and margins, and the platform turns that into a Fair Value that you can then compare with the current price on the Community page used by millions of investors.
Think of a Narrative as your joined-up view. It connects what you believe about Bath & Body Works as a business to a forecast and then to a Fair Value. It updates automatically when fresh news or earnings arrive, and it makes it easier to decide if the gap between price and Fair Value feels large enough for you to consider buying, holding or selling.
For example, one Bath & Body Works Narrative on Simply Wall St currently points to a Fair Value of about US$55.69 per share, while another points to about US$17.00. This shows how two investors, using the same company but very different stories and assumptions, can reach very different conclusions about what the stock is worth today.
For Bath & Body Works, however, we'll make it really easy for you with previews of two leading Bath & Body Works Narratives:
Fair value: US$40.73 per share
Implied discount to this narrative: about 52.1% below its fair value estimate
Revenue growth assumption: 6.22%
- Sees the 2021 spin off from L Brands and the inherited debt as the main reason current financials look messy, and focuses on post spin data to judge the business on its own footing.
- Argues that headline models which lean heavily on the dividend underrate the effect of buybacks and debt paydown, leading the author to a higher intrinsic value than simpler approaches suggest.
- Frames the long term case around reducing debt, expanding internationally, and reaching more male customers, while viewing the new CEO's background as a positive for those goals.
Fair value: US$17.00 per share
Implied premium to this narrative: about 14.7% above its fair value estimate
Revenue growth assumption: 0.76%
- Highlights heavy reliance on physical stores and traditional product lines at a time when competition from online and niche brands is intense and customer tastes are changing quickly.
- Points to rising costs for sustainability, marketing, and operations as a risk to margins, especially if promotions and limited editions are needed to keep sales steady.
- Views the bearish analyst price target of US$32.00 as leaving limited upside from prior trading levels, and encourages investors to test those assumptions against their own expectations for revenue, margins, and required return.
If you want to see how these viewpoints line up with your own expectations, you can read the full narratives, stress test the assumptions, and then build a version that fits your outlook on Bath & Body Works using Curious how numbers become stories that shape markets? Explore Community Narratives.
Do you think there's more to the story for Bath & Body Works? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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