Victoria's Secret (VSCO): Buy, Sell, or Hold Post Q3 Earnings?

Victoria's Secret & Co. (VSCO) has been a subject of interest among investors following its recent earnings report and the subsequent price target changes by analysts. As the company continues to navigate the competitive retail landscape, investors are left wondering whether to buy, sell, or hold onto their VSCO shares. This article will delve into the key factors driving the recent price target changes and provide an analysis of the company's valuation, earnings performance, and analyst sentiments to help investors make an informed decision.



Earnings Performance and Valuation

VSCO's earnings performance has been a mixed bag in recent quarters. The company reported a net loss of $56 million in the most recent quarter (2024-10-31), with a diluted EPS of -$0.71. While the company's EBITDA has been relatively stable, with $150 million in the most recent quarter, its revenue growth has been negative, with a growth rate of -0.007. This indicates that the company's earnings performance has been declining, and its revenue has been stagnant.

However, VSCO's current valuation appears to be attractive, with a Price-to-Sales (P/S) ratio of 0.53. This is significantly lower than its historical averages and industry peers, suggesting that the stock may be undervalued. Additionally, VSCO's P/E ratio has been relatively high, with a current P/E ratio of 19.69 and a forward P/E ratio of 14.39. This indicates that the company's stock price may be overvalued compared to its earnings.

Analyst Sentiments and Price Target Changes

Analysts have expressed mixed sentiments regarding VSCO's future prospects, with some expressing caution and others seeing opportunities for growth. Morgan Stanley analyst Alex Straton lowered the firm's price target on VSCO to $40 from $44, citing concerns about the company's ability to maintain or improve its gross margins and profitability in 2025. The analyst believes that the burden for 2025 will be on sales growth acceleration and/or expense reduction, suggesting that VSCO will need to either increase its sales or reduce its expenses to maintain or improve its stock price.

On the other hand, another article highlights that VSCO has a Momentum Score of A, indicating that it's the right time to enter the stock to take advantage of the momentum with the highest probability of success. Additionally, VSCO is trading at a reasonable valuation, with a Price-to-Sales ratio of 0.53, suggesting that there is still room for the stock to grow.



Conclusion

In conclusion, VSCO's earnings performance has been declining, with negative net income, negative EPS, and negative revenue growth. However, the company's current valuation appears to be attractive, with a low P/S ratio and a high P/E ratio. Analysts have expressed mixed sentiments regarding VSCO's future prospects, with some expressing caution and others seeing opportunities for growth. Given the company's valuation and the potential for growth, investors may want to consider buying or holding onto their VSCO shares. However, it is essential to monitor the company's earnings performance and analyst sentiments closely to make an informed decision.