Discount Purchase or Dangerous Guess? Bathtub & Physique Works Slides to 52-Week Low

In Tuesday’s motion, 161 NYSE shares hit new 52-week highs, whereas 50 hit new 52-week lows. Over on Nasdaq, 180 hit new 52-week highs in comparison with 139 hitting new 52-week lows.

One among 50 NYSE shares hitting a brand new 52-week low was Bathtub & Physique Works (BBWI), a one-time celebrity inventory. In November 2021, throughout COVID, the specialty retailer’s inventory hit a 20-year excessive at $82. 4 years later, it trades at one-quarter that.

Yesterday, the vendor of physique cleaning soap, physique lotions, aromatic candles, and different house gadgets hit its twenty fifth new 52-week low up to now 12 months. In consequence, BBWI inventory is down over 30% up to now 12 months.

With so many costly shares lately, a inventory buying and selling for one-quarter of its previous market cap would garner consideration from worth traders. Nonetheless, you could possibly additionally make the argument that there are causes the inventory continues to lose floor, making a possible purchase lower than a certain factor.

Is Bathtub & Physique Works a cut price purchase or dangerous wager? I’ll take a look at either side of the argument.

Every time I contemplate a possible worth purchase, I wish to look again at a time when its shares had been extremely valued — on this case, November 2021.

As I discussed within the introduction, it hit a 20-year excessive of $82 4 years in the past this month. That will have valued Bathtub & Physique Works’ fairness at $21.13 billion primarily based on 257.7 million shares excellent. Add in $2.88 billion in web debt for an enterprise worth of $24.01 billion.

In fiscal 2021 (year-end Jan. 31, 2022), it had gross sales of $7.88 billion, 23% and 46% larger than in 2020 and 2019, respectively. Its web revenue in 2021 was $1.33 billion, or $4.88 a share.

So, its shares had been valued at 16.8 occasions its earnings in November 2021. Appears cheap for double-digit development on the highest and backside strains.

Nonetheless, practically 20% of the earnings had been from discontinued operations — it accomplished the tax-free spin-off of Victoria’s Secret in August 2021 — so the precise P/E a number of was 20.8x primarily based on its continued operations, which earned $3.94 a share.

Nonetheless not obscene.

As for price-to-sales, its market cap was 2.68 occasions its 2021 gross sales of $7.88 billion. Additionally not obscene. For comparability, Lululemon (LULU) shares had been buying and selling round $475 in November 2021, 179% above their present worth. In accordance with S&P World Market Intelligence, LULU had P/E and P/S ratios of practically 70x and 10x, respectively.

Traders shopping for BBWI inventory on the time possible had little if any inkling that the enterprise was about to implode as individuals stopped shopping for a lot hand cleaning soap.

So, the query turns into, “What’s Bathtub & Physique Works’ true degree of gross sales primarily based on earlier historic revenue statements?”

Between 2015 and 2018, Bathtub & Physique Works’ CAGR (compound annual development charge) for gross sales was 9.3%. Between 2018 and 2021, it was 18.2%, practically double. Lastly, between 2021 and 2024, it was -2.5%.

Earlier than you surrender on BBWI inventory, keep in mind that its 2024 gross sales of $7.31 billion are nonetheless 35% larger than its 2019 gross sales of $5.41 billion, which is usually thought of the beginning of COVID and when its gross sales started to take off.

Probably the most important query mark for traders for the time being is whether or not it may well ever return to working margins within the excessive 20s — it was 29.0% in This fall 2021 and 10.1% in Q2 2025.

If all goes proper, it may well get again into the excessive teenagers, low 20s.

In Q2 2025, its gross margin was 43.3%, 90 foundation factors larger than a 12 months earlier. Nonetheless, its working bills had been 30.9% of income, and its working margin of 12.4%, 40 foundation factors lower than the primary half of 2024.

In Could 2025, the corporate employed Daniel Heaf as its new CEO. The previous Nike (NKE) government has been within the job for six months. It’s going to take one other six months earlier than his technique hits its stride. Your persistence needs to be rewarded.

CFO Eva Boratto stated in August throughout the Q2 2025 convention name in regards to the firm’s plan:

“We’re targeted on three precedence areas. First, accelerating prime line development whereas sustaining or increasing margins. Second, enhancing operational excellence. And third, constantly deploying our robust money circulation to put money into development alternatives and return worth to shareholders.”

Within the trailing 12 months ended Aug. 2, 2025, its working money circulation was $1.001 billion, the very best 12-month interval since Q3 2023. Its free money circulation yield is 8.5% primarily based on free money circulation of $783 and an enterprise worth of $9.16 billion.

Something above 8%, particularly in these markets, is in worth territory. I like Heaf’s possibilities of delivering shareholder worth over the subsequent 12-18 months.

For me, a lot of the draw back has already been factored into its present share worth. Of the 17 analysts overlaying its inventory, 11 charge it a Purchase, with no promote suggestions. Wall Avenue’s present EPS estimate for 2025 is $3.62 a share, leaping to $3.98 in 2026.

Probably the most important concern traders ought to have with Bathtub & Physique Works, except for its gross sales slowing since popping out of COVID, is its stability sheet. It has a complete debt of $4.99 billion, which is 109% of its market cap. That’s excessive. Its curiosity expense of $292 million is 37% of its trailing 12-month free money circulation.

Except it may well actually enhance margins within the subsequent few quarters — it has stated it’s targeted on rising gross sales — it’s not going to pay down its debt in a significant approach.

Alternatively, it pays down debt on the expense of dividends and share repurchases. Within the first six months, it paid out $85 million in dividends and purchased again $254 million of its shares.

If margins don’t enhance dramatically, the corporate will not give one of many two capital allocation levers the eye it deserves. Traders might draw back from Bathtub & Physique Works as a result of they disagree with capital allocation strikes made by the comparatively new CEO.

In 2024, it repaid $522 million of its debt. It’s unlikely to repay rather more than that in 2025. Within the first six months of the fiscal 12 months, it hasn’t paid down any of its debt. Nonetheless, it tends to pay down its debt within the second half of the 12 months, throughout the firm’s two strongest quarters.

Nonetheless, I see why somebody is perhaps hesitant to purchase this falling knife.

Backside Line: There are literally thousands of U.S.-listed shares to purchase. Proudly owning BBWI is not going to alter your life like proudly owning Apple (AAPL) or Nvidia (NVDA) may.

That stated, I like betting on underdogs. Bathtub & Physique Works is unquestionably that. Right here’s a doable name choice to purchase for these prepared to take a threat. The ask worth of $2.05 is 9.2% of the present worth. Something under 10% is an efficient use of leverage. Worst-case situation, you’re out $205.

On the date of publication, Will Ashworth didn’t have (both immediately or not directly) positions in any of the securities talked about on this article. All info and information on this article is solely for informational functions. This text was initially printed on Barchart.com