Bath & Body Works, Inc.'s (NYSE:BBWI) price-to-earnings (or "P/E") ratio of 12x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 17x and even P/E's above 32x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
With its earnings growth in positive territory compared to the declining earnings of most other companies, Bath & Body Works has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Keen to find out how analysts think Bath & Body Works' future stacks up against the industry? In that case, our free report is a great place to start.
How Is Bath & Body Works' Growth Trending?
There's an inherent assumption that a company should underperform the market for P/E ratios like Bath & Body Works' to be considered reasonable.
Retrospectively, the last year delivered a decent 13% gain to the company's bottom line. The solid recent performance means it was also able to grow EPS by 25% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.
Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 2.4% each year over the next three years. With the market predicted to deliver 10% growth each year, the company is positioned for a weaker earnings result.
In light of this, it's understandable that Bath & Body Works' P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Final Word
It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
As we suspected, our examination of Bath & Body Works' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
There are also other vital risk factors to consider and we've discovered 4 warning signs for Bath & Body Works (1 is potentially serious!) that you should be aware of before investing here.
If you're unsure about the strength of Bath & Body Works' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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.
Bath & Body Works, Inc. 's(紐約證券交易所代碼:BBWI)市盈率(或 “市盈率”)爲12倍,與美國市場相比,目前可能看起來像買入。在美國,約有一半公司的市盈率高於17倍,甚至市盈率高於32倍也很常見。儘管如此,我們需要更深入地挖掘,以確定降低市盈率是否有合理的基礎。
與大多數其他公司的收益下降相比,Bath & Body Works的收益增長處於正值區間,最近表現良好。一種可能性是市盈率很低,因爲投資者認爲該公司的收益將像其他所有人一樣很快下降。如果不是,那麼現有股東就有理由對股價的未來走向非常樂觀。
想了解分析師如何看待Bath & Body Works的未來與該行業的對立嗎?在這種情況下,我們的免費報告是一個很好的起點。
Bath & Body Works的增長趨勢如何?
人們固有的假設是,如果像Bath & Body Works這樣的市盈率才算合理,公司的表現應該低於市場。