What’s The Downside For Helen Of Troy Stock?

Helen of Troy stock (NASDAQ: HELE) is up only 3% since the beginning of this year, but at the current price of around $185 per share, we believe that Helen of Troy stock could see significant downside.

Why is that? Our belief stems from the fact that HELE stock has jumped 1.4x from the low seen at the end of 2018, around 1.5 years ago. Our dashboard What Factors Drove 41% Change In Helen of Troy Stock Between 2018 And Now? provides the key numbers behind our thinking, and we explain more below.

Helen of Troy is a manufacturer of houseware, and health & beauty products, under its flagship brands such as Vicks, Braun, and Honeywell among others. The stock rise over the past year and a half came due to a 15% growth in revenue, which combined with a 7% drop in the outstanding share count, led to a 24% jump in revenue per share (RPS)

Further, Helen of Troy’s P/S ratio rose from 2.4x in 2018 to 3x in 2019, due to increased investor expectations as revenue grew at a rate faster than operating expenses, which boosted the company’s EPS. EPS from continuing operations has risen from $4.76 in 2018 to $6.06 in 2020 (HELE’s fiscal year ends in February). While its P/S has dropped to around 2.7x currently, given the volatility of the current situation, there is significant possible downside risk for Helen of Troy’s multiple, especially when compared with previous years: 2x in late 2017, and 2.4x as recently as late 2018.

So what’s the likely trigger and timing to this downside?

The global spread of coronavirus, and the resulting economic slowdown means that buying new consumer discretionary products is just not a priority for people anymore. Further, given the lockdowns in many countries and people working from home, demand for beauty products has also dropped. We believe HELE’s Q2 ’21 results in October will confirm the hit to its revenue, and could also likely accompany a lower 2H 2021 guidance.

Regardless, if there isn’t clear evidence of containment of the virus anytime soon, we believe the stock will see its P/S multiple decline from the current level of 2.7x to around 2.4x, which combined with a slight reduction in revenues and margins could result in the stock price shrinking to as low as $160.

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