What Does Bath & Body Works, Inc.'s (NYSE:BBWI) Share Price Indicate?

Bath & Body Works, Inc. (NYSE:BBWI), is not the largest company out there, but it received a lot of attention from a substantial price movement on the NYSE over the last few months, increasing to US$39.31 at one point, and dropping to the lows of US$31.70. Some share price movements can give investors a better opportunity to enter into the stock, and potentially buy at a lower price. A question to answer is whether Bath & Body Works' current trading price of US$33.21 reflective of the actual value of the mid-cap? Or is it currently undervalued, providing us with the opportunity to buy? Let’s take a look at Bath & Body Works’s outlook and value based on the most recent financial data to see if there are any catalysts for a price change.

See our latest analysis for Bath & Body Works

Is Bath & Body Works Still Cheap?

According to my 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. I’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 10.8x is currently trading slightly above its industry peers’ ratio of 10.72x, which means if you buy Bath & Body Works today, you’d be paying a relatively reasonable price for it. And if you believe Bath & Body Works should be trading in this range, then there isn’t really any room for the share price grow beyond the levels of other industry peers over the long-term. So, is there another chance to buy low in the future? Given that Bath & Body Works’s share is fairly volatile (i.e. its price movements are magnified relative to the rest of the market) this could mean the price can sink lower, giving us an opportunity to buy later on. This is based on its high beta, which is a good indicator for share price volatility.

Can we expect growth from Bath & Body Works?

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. With profit expected to grow by 34% over the next couple of years, the future seems bright for Bath & Body Works. It looks like higher cash flow is on the cards for the stock, which should feed into a higher share valuation.

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 conviction to buy should the price fluctuate 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 diving deeper into 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. For instance, we've identified 4 warning signs for Bath & Body Works (1 is significant) you should be familiar with.

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.

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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.