- If you are wondering whether Sally Beauty Holdings is still worth your attention at around US$14.54 per share, this article walks through what that price could mean for value focused investors.
- The stock is roughly flat year to date with a 0.3% return. However, the 59.4% return over the past year, alongside shorter term moves of a 1.7% decline over 7 days and a 4.5% decline over 30 days, suggests sentiment has shifted more than once recently.
- Recent coverage has focused on Sally Beauty Holdings as an established name in beauty retail, with attention on how it is positioned in a competitive specialty retail space and how its store footprint and brand portfolio fit current consumer trends. This has framed the stock as one that investors revisit periodically as conditions in retail and discretionary spending change.
- Against that backdrop, Sally Beauty Holdings currently scores a 6 out of 6 valuation score, which means it screens as undervalued on all six of Simply Wall St's valuation checks. Next, we will look at what different valuation approaches say about that price and finish with a way to assess value that can add extra context beyond the headline numbers.
Approach 1: Sally Beauty Holdings Discounted Cash Flow (DCF) Analysis
A Discounted Cash Flow, or DCF, model looks at the cash a business is expected to generate in the future and then discounts those cash flows back to today to estimate what the company might be worth right now.
For Sally Beauty Holdings, the model uses a 2 Stage Free Cash Flow to Equity approach. The company’s latest twelve month free cash flow is about $233.1 million, with projected free cash flow of $142 million for the year to 30 September 2024. Beyond the near term, Simply Wall St extends analyst estimates with its own projections, reaching an implied free cash flow of about $528.8 million in 2035, all expressed in US$.
Bringing these projected cash flows back to today, the DCF model arrives at an estimated intrinsic value of roughly $51.06 per share. Compared with the current share price of about $14.54, that implies the stock is around 71.5% undervalued based on this model alone.
Result: UNDERVALUED
Our Discounted Cash Flow (DCF) analysis suggests Sally Beauty Holdings is undervalued by 71.5%. Track this in your watchlist or portfolio, or discover 48 more high quality undervalued stocks.
Approach 2: Sally Beauty Holdings Price vs Earnings
For a company that is generating profits, the P/E ratio is a straightforward way to think about value because it links what you pay per share to the earnings that each share represents. In general, higher growth expectations and lower perceived risk can support a higher “normal” or “fair” P/E, while slower growth and higher risk tend to line up with a lower one.
Sally Beauty Holdings currently trades on a P/E of about 7.8x. That sits below both the Specialty Retail industry average P/E of roughly 18.5x and a peer group average of about 33.4x. To give more context than a simple comparison, Simply Wall St calculates a proprietary “Fair Ratio” of 14.8x for Sally Beauty Holdings. This Fair Ratio reflects factors such as the company’s earnings growth profile, its industry, profit margins, market cap and key risks, so it is more tailored than just lining the stock up against peers or the sector.
Comparing the current P/E of 7.8x with the Fair Ratio of 14.8x suggests the shares trade below what this framework would indicate as a fair level.
Result: UNDERVALUED
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Upgrade Your Decision Making: Choose your Sally Beauty Holdings Narrative
Earlier we mentioned that there is an even better way to understand valuation. On Simply Wall St you can use Narratives to connect your view of Sally Beauty Holdings as a business with a concrete forecast and Fair Value, then compare that Fair Value with today’s price and see how it updates as new news or earnings arrive. You can explore a more cautious story that ties to a Fair Value of around US$16.00, a more optimistic view at about US$20.00, or land somewhere in between using the Community page, where millions of investors share and refine these stories behind the numbers.
Do you think there's more to the story for Sally Beauty Holdings? Head over to our Community to see what others are saying!
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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