Victoria's Secret & Co.'s (NYSE:VSCO) Shares Bounce 30% But Its Business Still Trails The Market

Victoria's Secret & Co. (NYSE:VSCO) shareholders would be excited to see that the share price has had a great month, posting a 30% gain and recovering from prior weakness. Unfortunately, despite the strong performance over the last month, the full year gain of 7.9% isn't as attractive.

Although its price has surged higher, Victoria's Secret may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 13.5x, since almost half of all companies in the United States have P/E ratios greater than 20x and even P/E's higher than 35x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Victoria's Secret's earnings growth of late has been pretty similar to most other companies. It might be that many expect the mediocre earnings performance to degrade, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

See our latest analysis for Victoria's Secret

Keen to find out how analysts think Victoria's Secret's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Victoria's Secret's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Victoria's Secret's to be considered reasonable.

Retrospectively, the last year delivered a decent 6.8% gain to the company's bottom line. Still, lamentably EPS has fallen 66% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 2.3% over the next year. With the market predicted to deliver 15% growth , the company is positioned for a weaker earnings result.

With this information, we can see why Victoria's Secret is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Victoria's Secret's P/E?

The latest share price surge wasn't enough to lift Victoria's Secret's P/E close to the market median. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Victoria's Secret maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Plus, you should also learn about these 2 warning signs we've spotted with Victoria's Secret.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.