I Am in Love With Sally. You Should Be Too.
Smart traders with moderate time horizons have captured fine profits on this stock's nine previous major selloffs since 2014. You have just been given the next great entry point.
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Sally Beauty Holdings SBH has made me solid profits over the years even though the stock has been a horrible “buy and hold” proposition.
SBH provides ample opportunities for occasional in-and-out trading due to extreme volatility, which has typically not been justified by fundamentals.
The data below provide a snapshot of Sally’s last 10 years.
The firm made solid strides across most major metrics. If estimates for this fiscal year prove accurate (FYs end Sep. 30th of the same year) per share sales grew by almost 50%. Cash flow was up about 40%, EPS will have climbed by 22.8%. Book value improved dramatically, going from a negative $1.97 per share to a positive $7.75 or so.
SBH used free cash flow to pay down about $830 million in long-term debt since the end of FY 2015 while also buying back around 34% of all shares outstanding.
You would think that all those accomplishments would have been rewarded by the stock market. Instead, as of Feb. 27, 2025, the shares were trading for 73.3% less than they did exactly a decade earlier.
How is that possible? SBH fetched near its all-time high of $35.52 10 years ago when traders were willing to pay 23.7 times earnings for it. Right now SBH fetches only around 4.8 times earnings.
P/E compression is a horrible thing if you continuously owned the stock while it was occurring. Buyers at historically cheap entry point valuations, however, were well compensated for establishing positions and then trading out of them when the valuation regressed to the mean, or slightly above, over time. Sally has never paid cash dividends. It exhibits much higher than average share price volatility. Those traits make for great opportunities.
Smart traders with moderate time horizons of months, rather than years, captured fine profits on SBH’s nine previous major selloffs since 2014.
The nine bottoms from July 2014 through September of 2024 gave traders chances at average gains of 83.4% achieved over average holding periods of just 4.1 months. If those types of gains appeal to you, you have just been given the next great entry point.
Sally established a new cyclical low of $8.85 intraday on Thursday Feb. 27, 2025. SBH was down 40% from a Nov. 26, 2024, peak of $14.77 just three months earlier.
There was no bad news to justify that large drop in price. In fact, the fiscal Q1 numbers were quite impressive.
What Is Sally Beauty Worth?
Over the most recent decade, its average P/E multiple ran 11.1 times. The stock’s best entry valuations since 2018 all came with P/Es that were well below SBH’s normalized level.
Right now the shares are available for just 4.8 times FY 2025’s earnings estimate. That is Sally’s second lowest P/E ever.
After three straight months of market declines during August through October of 2023, SBH was pummeled to only 3.9x trailing earnings. Buyers at that bottom of $7.20 saw the stock scamper back to $13.80 by February of 2024.
That less than 4-month rise provided traders with a stunning 91.7% gain.
By September of last year SBH had inexplicably dipped back to $9.10 allowing Sally lovers the chance to reload and profit once again. By around Thanksgiving SBH was up nearly 27%.
The graphic above shows that SBH topped out between $18.40 and $35.30 during each of the nine calendar years 2015 right through 2023.
Sally’s average EPS was $1.75 during that span, slightly lower than is expected for the FY ending Sep. 30, 2025.
Conservatively assume Sally can command an eight times multiple sets your target price at $16.65. At 10 times earnings it could rebound to $18.85. Reaching an average P/E of 11.1 could take SBH back to about $20.53 per share.
Yahoo Finance calls SBH undervalued while targeting $12.75/share within a year. Hitting that very modest goal would deliver a 42.9% increase from the current quote.
That projected gain, though, appears laughably low. It represents a year-ahead P/E of just 6.9x. It is also well below every annual high for SBH in about 14 years.
I am not alone in sensing the fine prospects for buying into Sally now.
StarMine research places the shares into its highest “very bullish” category.
I have made my case and shown supporting evidence for my conclusions.
Readers can make their own decisions on whether to love Sally as much as I do.
More Paul Price
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At the time of publication, Price was long shares of SBH including a large amount bought on Feb. 27, 2025.
