Is Bath & Body Works (BBWI) Pricing Reflect Its Recent Rebound And DCF Estimate?

• If you are wondering whether Bath & Body Works is a bargain or a value trap at its current price, this article walks through the numbers so you can judge for yourself.
• The stock recently closed at US$20.74, with returns of 1.5% over the past 7 days and 10.1% over the past 30 days, compared with a return of 0.0% year to date and a 41.4% decline over the last year, plus a 50.3% decline over 3 years and a 39.4% decline over 5 years.
• Recent coverage has focused on how Bath & Body Works is positioned within the broader retail sector and how investors are reacting to its share price performance. This context helps frame whether the recent short term gains are changing how the market prices the business after a weaker multi year run.
• On Simply Wall St's 6 point valuation framework, Bath & Body Works has a valuation score of 5, which means it screens as undervalued on 5 of the 6 checks. Next, we will look at how methods like discounted cash flow and multiples compare, before finishing with a framework that can help you think about value even more clearly.

Find out why Bath & Body Works's -41.4% return over the last year is lagging behind its peers.

Approach 1: Bath & Body Works Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model takes estimated future cash flows, then discounts them back to today to arrive at an estimate of what the business might be worth per share.

For Bath & Body Works, the latest twelve month Free Cash Flow is about $923.9 million. Using a 2 Stage Free Cash Flow to Equity model, analysts and Simply Wall St projections estimate Free Cash Flow of $1,075 million by 2030, with interim yearly figures based on a mix of analyst inputs for the earlier years and extrapolated estimates for the outer years.

These projected cash flows are discounted back to today using the DCF model, which results in an estimated intrinsic value of $54.56 per share. Compared with the recent share price of $20.74, the model suggests an implied discount of about 62.0%. This indicates that the shares screen as materially undervalued on this basis.

Result: UNDERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Bath & Body Works is undervalued by 62.0%. Track this in your watchlist or portfolio, or discover 870 more undervalued stocks based on cash flows.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Bath & Body Works.

Approach 2: Bath & Body Works Price vs Earnings

For a profitable company like Bath & Body Works, the P/E ratio is a useful shorthand because it ties what you pay directly to the earnings the business is already generating.

What counts as a normal or fair P/E depends on how the market views the company’s growth prospects and risk. Higher expected growth or lower perceived risk can justify a higher P/E, while slower growth or higher risk tends to line up with a lower P/E.

Bath & Body Works currently trades on a P/E of about 6.1x. That sits well below the Specialty Retail industry average of 19.8x and a peer average of 18.8x. Simply Wall St also calculates a Fair Ratio of 14.2x. This Fair Ratio is a proprietary estimate of what the P/E could be, based on factors like earnings growth, profit margin, industry, market cap and company specific risks.

Because the Fair Ratio builds these fundamentals directly into the number, it can often be more informative than a simple comparison with industry or peer averages that treat all companies as if they are identical.

Here, the Fair Ratio of 14.2x is above the current P/E of 6.1x, which suggests the shares screen as undervalued on this metric.

Result: UNDERVALUED

P/E ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1462 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Bath & Body Works Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce Narratives. These are simply the story you believe about a company, linked directly to a forecast and a Fair Value number. On Simply Wall St you can build and compare these on the Community page, see how your Bath & Body Works view lines up against others, and keep it updated as news or earnings arrive. For example, one investor might build a bullish Bath & Body Works Narrative around lease renewals, a 37 million member loyalty base and new product categories, with a Fair Value closer to US$64.56. Another might focus on debt, digital underperformance and tariff pressures, and sit nearer US$24.35. Each can then compare their Fair Value to the live share price to decide for themselves whether the stock looks expensive or cheap based on their own story.

Do you think there's more to the story for Bath & Body Works? Head over to our Community to see what others are saying!

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.

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