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.
Certainly one of 50 NYSE shares hitting a brand new 52-week low was Tub & Physique Works (BBWI), a one-time famous person 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 prior to now 12 months. In consequence, BBWI inventory is down over 30% prior to now 12 months.
With so many costly shares as of late, a inventory buying and selling for one-quarter of its previous market cap would garner consideration from worth buyers. Nevertheless, you possibly can additionally make the argument that there are causes the inventory continues to lose floor, making a possible purchase lower than a positive factor.
Is Tub & Physique Works a cut price purchase or dangerous wager? I’ll take a look at either side of the argument.
Each time I contemplate a possible worth purchase, I prefer to look again at a time when its shares have 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 might have valued Tub & Physique Works’ fairness at $21.13 billion based mostly on 257.7 million shares excellent. Add in $2.88 billion in internet 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 internet earnings in 2021 was $1.33 billion, or $4.88 a share.
So, its shares have been valued at 16.8 occasions its earnings in November 2021. Appears affordable for double-digit development on the highest and backside strains.
Nevertheless, almost 20% of the earnings have 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 based mostly 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 have 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 almost 70x and 10x, respectively.
Buyers shopping for BBWI inventory on the time probably 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 Tub & Physique Works’ true degree of gross sales based mostly on earlier historic earnings statements?”
Between 2015 and 2018, Tub & Physique Works’ CAGR (compound annual development charge) for gross sales was 9.3%. Between 2018 and 2021, it was 18.2%, almost double. Lastly, between 2021 and 2024, it was -2.5%.
Earlier than you surrender on BBWI inventory, do not forget that its 2024 gross sales of $7.31 billion are nonetheless 35% larger than its 2019 gross sales of $5.41 billion, which is often thought of the beginning of COVID and when its gross sales started to take off.
Essentially the most vital query mark for buyers in the meanwhile is whether or not it will probably ever return to working margins within the excessive 20s — it was 29.0% in This autumn 2021 and 10.1% in Q2 2025.
If all goes proper, it will probably 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. Nevertheless, its working bills have 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 would take one other six months earlier than his technique hits its stride. Your endurance ought to be rewarded.
CFO Eva Boratto stated in August throughout the Q2 2025 convention name concerning the firm’s plan:
“We’re centered on three precedence areas. First, accelerating prime line development whereas sustaining or increasing margins. Second, enhancing operational excellence. And third, persistently deploying our robust money move to spend money on development alternatives and return worth to shareholders.”
Within the trailing 12 months ended Aug. 2, 2025, its working money move was $1.001 billion, the best 12-month interval since Q3 2023. Its free money move yield is 8.5% based mostly on free money move 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 probabilities of delivering shareholder worth over the following 12-18 months.
For me, a lot of the draw back has already been factored into its present share worth. Of the 17 analysts protecting 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.
Essentially the most vital concern buyers ought to have with Tub & Physique Works, other than 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 move.
Until it will probably actually enhance margins within the subsequent few quarters — it has stated it’s centered on rising gross sales — it’s not going to pay down its debt in a significant means.
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 improve dramatically, the corporate will not give one of many two capital allocation levers the eye it deserves. Buyers might shrink back from Tub & 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. Nevertheless, 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 likely to be 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)would possibly.
That stated, I like betting on underdogs. Tub & Physique Works is certainly that. Right here’s a doable name choice to purchase for these keen to take a danger. The ask worth of $2.05 is 9.2% of the present worth. Something beneath 10% is an efficient use of leverage. Worst-case state of affairs, 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 data and information on this article is solely for informational functions. This text was initially revealed on Barchart.com
