Victoria's Secret’s 32.2% return over the past six months has outpaced the S&P 500 by 19%, and its stock price has climbed to $44.69 per share. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now the time to buy Victoria's Secret, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.

Why Is Victoria's Secret Not Exciting?

We’re glad investors have benefited from the price increase, but we're sitting this one out for now. Here are three reasons there are better opportunities than VSCO and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last three years, Victoria's Secret grew its sales at a sluggish 1.1% compounded annual growth rate. This was below our standards.

2. Weak Operating Margin Could Cause Trouble

Operating margin is an important measure of profitability for retailers as it accounts for all expenses necessary to run a store, including wages, inventory, rent, advertising, and other administrative costs.

Victoria's Secret’s operating margin has generally stayed the same over the last 12 months, averaging 4.5% over the last two years. This profitability was lousy for a consumer retail business and caused by its suboptimal cost structureand low gross margin.

3. EPS Trending Down

Analyzing the long-term change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

Sadly for Victoria's Secret, its EPS declined by 16.2% annually over the last three years while its revenue grew by 1.1%. This tells us the company became less profitable on a per-share basis as it expanded.

Final Judgment

Victoria's Secret’s business quality ultimately falls short of our standards. With its shares beating the market recently, the stock trades at 12.9× forward P/E (or $44.69 per share). This valuation is reasonable, but the company’s shakier fundamentals present too much downside risk. We're pretty confident there are more exciting stocks to buy at the moment. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.

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