Limited Brands' Valuation Has Become Intriguing

This past Friday on CNBC's Fast Money, Karen Finerman chose Limited Brands, Inc. (LTD) as her final trade.

I recently purchased Limited Brands shares as well. A five year chart of LTD's stock price (Yahoo) shows that the stock has recently fallen from above $30 to the high teens.

Some key statistics from Yahoo Finance are as follows:

• Market Cap (intraday): 7.28B;
• Enterprise Value: 8.99B;
• Trailing P/E (ttm, intraday): 10.27;
• Forward P/E (fye 03-Feb-09): 12.40;
• PEG Ratio (5 yr expected): 1.01;
• Enterprise Value/EBITDA (ttm): 6.731;
• Profit Margin: 7.07%;
• Operating Margin: 9.06%;
• Quarterly Revenue Growth (yoy): -9.10%;
• Beta: 0.88;
• Shares Short (as of 09-Nov-07): 19.79M;
• Short Ratio (as of 09-Nov-07): 3.7;
• Short % of Float (as of 09-Nov-07): 6.30%;
• Shares Short (prior month): 19.49M;

Looking at those statistics, I note that the sales growth has been soft—hence, the reason for share price fall—yet the valuation on traditional metrics appears reasonable. Moreover, according to a Barron's article Limited Brands a Black Friday Bargain (subscription required), even head honcho Leslie Wexner agrees that valuation has become intriguing.

Chairman and Chief Executive Officer Leslie Wexner was the biggest purchaser, buying 280,000 shares for $5.1 million, or an average of $18.31 a share between Friday and Tuesday. The purchases were made indirectly through a trust. In a filing with the Securities and Exchange Commission, Wexner said he plans to buy an additional 720,000 shares over the next eight trading days. Wexner now owns 51,642,179 shares, or 14.3% of Limited stock outstanding. It was Wexner's first open-market purchase in more than 13 years, according to InsiderScore.com.

The stock hit a four year low of $16.50 on Nov. 21, the day after the company announced third quarter income dropped 48% and cut its outlook for the fourth quarter. Limited reported third quarter earnings of $12.1 million, or 3 cents per share, down from $23.5 million, or 6 cents per share, a year ago. Analysts polled by Thomson Financial had expected Limited to post earnings, excluding items, of 1 cent per share.

All that said, with the softness in the economy because of high energy prices and falling housing prices, I would not be surprised if I am early in my purchase. I consider my purchase of Limited Brands stock an investment, one that might take 12 to 18 months to play out. If Limited Brands falls further, I might increase my position.

Disclosure: I am long in Limited Brands stock.