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Is Helen of Troy Limited (HELE) the Ridiculously Cheap Stock to Invest In?

Julian CruzSaturday, Apr 19, 2025 5:50 pm ET

73min read

Helen of Troy Limited (NASDAQ: HELE), a consumer staples giant with iconic brands like Hydro Flask, OXO, and PUR, has seen its stock price plummet by nearly 37% in April 2025 alone. This sharp decline has pushed its trailing P/E ratio to a historic low of 9.16, raising questions about whether the stock is a bargain or a trap. Below, we dissect the financials, market dynamics, and risks to determine if HELE is truly undervalued—or if its struggles justify the selloff.

The Case for HELE as a Bargain

1. A Deeply Discounted Valuation

The stock’s P/E ratio of 9.16 as of April 2025 is starkly lower than its five-year average of 17.3 and the broader S&P 500’s trailing P/E of 25.5. This suggests the market is pricing in significant near-term risks—such as operational missteps and declining sales—but may be overlooking long-term value.

The company’s trailing EPS of $6.79 (as of April 2025) is robust, especially considering its market cap of $1.32 billion, which implies a $33.69 stock price could reflect an undervaluation if earnings stabilize.

2. Project Pegasus: A Turnaround Catalyst?

HELE’s restructuring initiative, Project Pegasus, aims to cut costs by $26–30 million annually by 2027, with $75–85 million in pre-tax savings by 2027. While the program’s near-term restructuring charges (projected at $50–55 million in 2025) are weighing on margins, the long-term benefits could revive profitability.

3. Strong Brands in Defensive Sectors

Hydro Flask and OXO are premium brands with strong brand equity in the consumer staples and home goods markets. These segments are less cyclical than discretionary categories, offering a buffer against economic downturns.

The Risks: Why the Stock Fell 37% in One Month

1. Revenue Collapse and Margin Pressures

HELE’s Q1 2025 net sales dropped 12.2% year-over-year to $416.8 million, driven by declines in both its Beauty & Wellness (-15.2%) and Home & Outdoor (-8.6%) segments. Key issues included:
- Supply chain disruptions: Curlsmith integration problems and Tennessee distribution center automation delays.
- Competitive pressures: Insulated beverageware rivals undercutting Hydro Flask’s premium positioning.
- Soft consumer demand: Retailers reduced orders amid inflation and shifting spending habits.

Operating margins shrank to 7.4% (from 8.6% in 2024), partly due to a 560-basis-point increase in SG&A costs (to 40.9% of sales).

2. Tax Headwinds and Earnings Volatility

A $6 million discrete tax charge in Q1 2025—linked to Barbados tax reforms—pushed the effective tax rate to 66.1%, compared to 15.5% in 2024. This one-time hit slashed adjusted EPS by nearly 50% to $0.99, further spooking investors.

3. Downward Guidance and Debt Concerns

HELE revised its fiscal 2025 outlook to $1.885–1.935 billion in revenue (a 6.0%–3.5% decline) and $287–297 million in adjusted EBITDA (a 14.6%–11.8% drop). While total debt decreased to $748 million, the net leverage ratio (a key covenant under its credit agreement) is now projected to end the year at 1.6x–1.5x, up from a prior target of 1.25x–1.00x. This leaves less room for error in a fragile economic environment.

Valuation vs. Reality: Is the P/E Ratio Misleading?

The P/E ratio’s allure hinges on whether HELE can return to growth. While the current 9.16 P/E seems cheap, it’s based on a one-time EPS hit. Stripping out the tax charge, adjusted EPS would be closer to $1.43, yielding a P/E of ~23.5—still below its five-year average but far less compelling.

Moreover, HELE’s free cash flow has been shrinking: from $109 million in 2024 to a revised $220–240 million forecast for 2025. This weak cash generation contrasts with its debt obligations and shareholder expectations.

Conclusion: A Gamble with Potential, but Risks Ahead

Helen of Troy’s stock is undeniably cheap on a trailing P/E basis, but its fundamentals are fragile. The 9.16 P/E may reflect justified pessimism about near-term earnings rather than a mispricing. Key takeaways:

Upside Case: If Project Pegasus delivers savings, supply chain issues resolve, and consumer demand rebounds, HELE could stabilize at $40–$50, offering a 20–45% return from April lows.
Downside Risks: Prolonged margin pressure, rising competition, or another tax shock could push the stock lower. The $32.64 April 15 low is a critical support level.

For investors, HELE is a high-risk, high-reward play. The valuation is compelling, but the company must execute its turnaround plan flawlessly—a challenge given its recent operational struggles. Those with a long-term horizon and tolerance for volatility might consider a small position, but this is not a buy-and-forget stock.

Final Verdict: HELE is cheap, but its valuation is a reflection of current pain. The “ridiculously cheap” label holds only if management can prove it’s worth more than its current struggles suggest.

Data as of April 2025. Past performance does not guarantee future results.

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