Victoria's Secret has been on fire lately. In the past six months alone, the company’s stock price has rocketed 92.2%, reaching $96.63 per share. This performance may have investors wondering how to approach the situation.
Is it too late to buy VSXY? Find out in our full research report, it’s free.
Why does Victoria's Secret spark debate?
Spun off from L Brands in 2020, Victoria’s Secret (NYSE:VSXY) is an intimate clothing and beauty retailer that sells its own brands of lingerie, undergarments, and personal fragrances.
Two things to like:
1. Surging same-store sales show increasing demand
Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).
Victoria's Secret has been one of the most successful retailers over the last two years thanks to skyrocketing demand within its existing locations. On average, the company has posted exceptional year-on-year same-store sales growth of 6.1%.
2. Increasing free cash flow margin juices financials
Free cash flow isn’t a prominently featured metric in company financials and earnings releases, but we think it’s telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.
As you can see below, Victoria's Secret’s margin expanded by 4.2 percentage points over the last year. This is encouraging because it gives the company more optionality. Victoria's Secret’s free cash flow margin for the trailing 12 months was 8%.
One reason to be careful:
Long-term revenue growth disappoints
A company’s long-term sales performance is one signal of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years. Over the last three years, Victoria's Secret grew its sales at a sluggish 3.8% compounded annual growth rate. This wasn’t a great result compared to the rest of the consumer retail sector, but there are still things to like about Victoria's Secret.
Final judgment
Victoria's Secret has huge potential even though it has some open questions, and with the recent surge, the stock trades at 19.8× forward P/E (or $96.63 per share). Is now a good time to buy? See for yourself in our full research report, it’s free.
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