At US$43.13, Is It Time To Put Bath & Body Works, Inc. (NYSE:BBWI) On Your Watch List?

While Bath & Body Works, Inc. (NYSE:BBWI) might not have the largest market cap around , it saw a significant share price rise of 53% in the past couple of months on the NYSE. The recent rally in share prices has nudged the company in the right direction, though it still falls short of its yearly peak. With many analysts covering the mid-cap stock, we may expect any price-sensitive announcements have already been factored into the stock’s share price. However, what if the stock is still a bargain? Let’s examine Bath & Body Works’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

View our latest analysis for Bath & Body Works

Is Bath & Body Works Still Cheap?

According to our price multiple model, which makes a comparison between the company's price-to-earnings ratio and the industry average, the stock price seems to be justfied. We’ve used the price-to-earnings ratio in this instance because there’s not enough visibility to forecast its cash flows. The stock’s ratio of 13.4x is currently trading in-line with its industry peers’ ratio, which means if you buy Bath & Body Works today, you’d be paying a relatively reasonable price for it. Is there another opportunity to buy low in the future? Since Bath & Body Works’s share price is quite volatile, we could potentially see it sink lower (or rise higher) in the future, giving us another chance to buy. This is based on its high beta, which is a good indicator for how much the stock moves relative to the rest of the market.

What does the future of Bath & Body Works look like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Although value investors would argue that it’s the intrinsic value relative to the price that matter the most, a more compelling investment thesis would be high growth potential at a cheap price. Bath & Body Works' earnings over the next few years are expected to increase by 27%, indicating a highly optimistic future ahead. This should lead to more robust cash flows, feeding into a higher share value.

What This Means For You

Are you a shareholder? It seems like the market has already priced in BBWI’s positive outlook, with shares trading around industry price multiples. However, there are also other important factors which we haven’t considered today, such as the track record of its management team. Have these factors changed since the last time you looked at BBWI? Will you have enough confidence to invest in the company should the price drop below the industry PE ratio?

Are you a potential investor? If you’ve been keeping an eye on BBWI, now may not be the most advantageous time to buy, given it is trading around industry price multiples. However, the positive outlook is encouraging for BBWI, which means it’s worth further examining other factors such as the strength of its balance sheet, in order to take advantage of the next price drop.

If you'd like to know more about Bath & Body Works as a business, it's important to be aware of any risks it's facing. To that end, you should learn about the 3 warning signs we've spotted with Bath & Body Works (including 1 which is significant).

If you are no longer interested in Bath & Body Works, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.