Victoria's Secret

Victoria's Secret & Co receives a 3-star quantitative star rating, reflecting our opinion that this share class is a balanced choice, but prudent investors should consider looking elsewhere. The stock currently trades at a 8% premium over our quantitative fair value estimate of $82.60 per share; however, this estimate should be taken with a pinch of salt due to its high uncertainty rating.

The company's valuation metrics undermine our fair value estimate. A company's valuation metrics provide insights into the market's expectations for its future growth and profitability. For example, the firm's book value yield of 13.6% ranks in the bottom 20% compared with peers globally. The market value of this company's shares looks expensive relative to the book (accounting) value of equity, which contributes to our view that shares are expensive.

Alternatively, the company's profitability is reassuring. Highly profitable companies are often more resilient in recessions and are likely to generate stronger future cash flows for shareholders. The firm's sales yield of 89.2%, for example, lies in the top 40% compared with global peers. This company has a robust ability to generate sales without much capital investment, freeing up more capital to be returned to shareholders in the long run. Despite our unfavorable price/fair value ratio, this characteristic is a positive attribute.

In addition to the aforementioned drivers, our model considers momentum as part of its comprehensive analysis. This share class has outperformed the broader universe over the past year. This outperformance may signify a bull trap, in light of other detractors from our model.

The company's quantitative economic moat rating of none suggests any excess returns could erode quickly as competition arrives. Additionally, the firm's moderate financial health score suggests it is acceptably positioned against adverse economic circumstances.