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L Brands Has More Upside

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Individual Trader


  • October numbers look good.
  • Stock will bring in momentum buyers once we surpass the 200-day moving average.
  • Still well undervalued at under $50 a share.

After a difficult summer, L Brands (LB) looks like it is on the way back. Shares are now back up trading around the $47 mark, which means we are practically back to our entry price which we initiated a few months ago. The reason for the nice bump in the shares was the impressive October numbers which saw Victoria’s Secret's comps rising by 1%. This may not look that impressive on the surface, but remember that the same flagship brand actually slumped by 5% in September. The company's other flagship brand "Bath & Body Works" kept its momentum going by reporting 5% growth in comps in October on the back of 4% comps growth in September. Due to the strength of October's numbers, management now believes earnings will reach the top end of its previous guidance for the third quarter. If shares can stay above the 200-day moving average of just under $47 a share, then L Brands should take out $50 pretty soon due to the stock still being pretty undervalued compared to its historic valuations.

Even at $50 a share, we still see significant upside in shares. L Brands current earnings multiple (taking shares to be approximately $47) is 13.8, which means it is still around 7 points off its 5-year average. The company's price to sales ratio is still a good 40% below its 5-year average. As this is a company which relies heavily on the pricing power of its brands, its margins are imperative to the success of the company. Many brick and mortar retailers continue to the go to the wall due to the lack of a clear competitive advantage. Despite L Brands also having suffered from wholesale weakness especially in the US, this company clearly has competitive advantages which is why there remain bargains in many segments of the retail industry.

This article was written by

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Analyst’s Disclosure: I am/we are long LB. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Seeking Alpha's Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.

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