Sally Beauty currently trades at $14.64 per share and has shown little upside over the past six months, posting a small loss of 3.7%. The stock also fell short of the S&P 500’s 6.2% gain during that period.

Is now the time to buy Sally Beauty, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is Sally Beauty Not Exciting?

We’re sitting this one out for now. Here are three reasons we avoid SBH, plus one stock we’d rather own.

1. Lack of New Stores, a Headwind for Revenue

A retailer’s store count influences how much it can sell and how quickly revenue can grow.

Sally Beauty operated 4,399 locations in the latest quarter, and over the last two years, has kept its store count flat while other consumer retail businesses have opted for growth.

When a retailer keeps its store footprint steady, it usually means demand is stable and it’s focusing on operational efficiency to increase profitability.

2. Flat Same-Store Sales Indicate Weak Demand

Same-store sales is an industry measure of whether revenue is growing at existing stores, and it is driven by customer visits (often called traffic) and the average spending per customer (ticket).

Sally Beauty’s demand within its existing locations has barely increased over the last two years as its same-store sales were flat.

3. Fewer Distribution Channels Limit Its Ceiling

With $3.73 billion in revenue over the past 12 months, Sally Beauty is a small retailer, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and negotiating leverage with suppliers.

Final Judgment

Sally Beauty isn’t a terrible business, but it doesn’t pass our bar. With its shares trailing the market in recent months, the stock trades at 6.8× forward P/E (or $14.64 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We’re pretty confident there are superior stocks to buy right now. We’d suggest looking at the Amazon and PayPal of Latin America.

Stocks We Like More Than Sally Beauty

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