Buy or Sell Bath & Body Works Stock?

Bath & Body Works (BBWI) stock has jumped 11% during the past day, and is currently trading at $18.67. We believe there are several things to fear in BBWI stock given its overall weak operating performance and financial condition. This is aligned with the stock’s very low valuation because of which we think it is fairly priced.

Below is our assessment:

Ask yourself – Is holding BBWI stock risky? Of course it is. High Quality Portfolio mitigates that risk.

Let’s get into details of each of the assessed factors but before that, for quick background: With $3.8 Bil in market cap, Bath & Body Works provides specialty retail of home fragrance, body care, soaps, and sanitizer products through over 2,000 company-operated and international partner stores worldwide.

[1] Valuation Looks Very Low

This table highlights how BBWI is valued vs broader market. For more details see: BBWI Valuation Ratios

[2] Growth Is Very Weak

• Bath & Body Works has seen its top line shrink at an average rate of -1.2% over the last 3 years
• Its revenues have fallen -0.2% from $7.3 Bil to $7.3 Bil in the last 12 months
• Also, its quarterly revenues declined -2.3% to $2.7 Bil in the most recent quarter from $2.8 Bil a year ago.

This table highlights how BBWI is growing vs broader market. For more details see: BBWI Revenue Comparison

[3] Profitability Appears Moderate

• BBWI last 12 month operating income was $1.1 Bil representing operating margin of 15.4%
• With cash flow margin of 15.1%, it generated nearly $1.1 Bil in operating cash flow over this period
• For the same period, BBWI generated nearly $649 Mil in net income, suggesting net margin of about 8.9%

This table highlights how BBWI profitability vs broader market. For more details see: BBWI Operating Income Comparison

[4] Financial Stability Looks Moderate

• BBWI Debt was $5.0 Bil at the end of the most recent quarter, while its current Market Cap is $3.8 Bil. This implies Debt-to-Equity Ratio of 131.4%
• BBWI Cash (including cash equivalents) makes up $953 Mil of $5.1 Bil in total Assets. This yields a Cash-to-Assets Ratio of 18.8%

[5] Downturn Resilience Is Weak

BBWI has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• BBWI stock fell 66.9% from a high of $78.37 on 18 November 2021 to $25.96 on 14 July 2022 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $51.94 on 2 June 2024 , and currently trades at $18.67

 
2020 Covid Pandemic

• BBWI stock fell 62.9% from a high of $19.77 on 12 February 2020 to $7.33 on 23 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 29 July 2020

 
2008 Global Financial Crisis

• BBWI stock fell 78.9% from a high of $23.73 on 22 February 2007 to $5.01 on 6 March 2009 vs. a peak-to-trough decline of 56.8% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 12 October 2010

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read BBWI Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.